Germany ease stance on bailout fund as rating agencies hint at possibility of US downgrade

Tom Tong12/Sep/2012Currency Updates

EUR

Yesterday the German Federal Constitutional Court decided to reject German Lawmaker’s bid to delay their ruling on their bailout fund. Today, the high court will announce its decision about the 500 billion Euro bailout fund.

However, traders took the news as a good sign for the Euro, and it rallied against the US Dollar, rising close to the May high. Regarding other tools to help fix the Euro crisis, German officials were less optimistic. A German Finance Minister said Germany is against debt unions or Euro bonds; they added that shared liability or a printing press won’t solve woes. They predicted that Germany will meet the 0.7% growth forecast for 2012, and is unlikely to beat the 1.6% forecast for 2013. He added that the Greece program conditions can’t be renegotiated, but complimented Italy and Spain for being on the right path.

One interesting development in Greece is that they have dramatically revived demands for billions in war damages from Germany as the euro crisis deepens. Ministers have set up a working party to add up how much Germany owes them for crimes committed after Hitler invaded Greece in 1941. The Greek National Bank was also forced to lend the German Occupation 476 million reichsmarks interest-free during World War Two — worth £8.7billion today.

GBP

The pound rose to the strongest level in almost four months versus the dollar after a report showed the U.K. trade deficit shrank in July as exports soared, adding to signs the economy is emerging from recession. While the trade deficit has shrunk, the proportion of british exports sent to countries that make up the Euro zone has sunk to its lowest level since 1988 when records began. This means we should perhaps look to more exotic currencies to follow the trend.

Sterling advanced for the fourth time in five days before a labor market report today forecast to show the unemployment rate stayed at the lowest in over a year. The pound also gained as a Bank of England policy maker said the U.K. economy may be stronger than growth data indicates. Ten-year gilts were little changed after a sale of inflation-linked bonds.

USD

The US economy added just 96,000 jobs in August, falling short of expectations and showing that with a presidential election just two months away, the nation still has a long ways to go to heal from the deep 2007-09 recession. The unemployment rate fell to 8.1 per cent from 8.3 per cent, but that was only because 368,000 people left the labour force. The share of working-age people who are either working or looking for work—known as the labour force participation rate—fell to its lowest level since September 1981. Indeed, Moody’s Investor Services fired warning shots against the U.S. and said the world’s largest economy may face a credit-rating downgrade as the government struggles to address the ‘fiscal cliff.’

Moody’s Investors Service said it may join Standard & Poor’s in downgrading the U.S.’s credit rating unless Congress next year reduces the percentage of debt- to-gross-domestic-product during budget negotiations. Oil traded near the highest close in almost three weeks in New York amid speculation the U.S. will add to measures to revive its economy, countering concern that Europe’s bailout plan will falter.

PLN

The zloty gained versus the euro after JPMorgan Chase & Co. raised its view on the Polish currency to neutral from underweight following the country’s bond sale yesterday at the lowest spread over U.S. Treasuries since 2005.

ZAR

South Africa’s current-account deficit unexpectedly widened to 6.4 percent of gross domestic product in the second quarter, the biggest gap in almost four years, as exports declined on a slump in global demand.

CNY

Economists have slashed Chinas GDP forecasts due to twin pressures of the global slump and bad domestic investments. In sync with this, the fashion house Burberry was forced to warn investors that China’s demand has been lower than they were hoping, knocking off a huge £1bn off its market value as the firm dropped 19 percent.

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Written by Tom Tong

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