No End In Sight For European Debt Crisis

As the Bank of England yesterday maintained interest rates at 0.5 percent, the situation in Europe continued to rumble on. The week has seen Sterling largely shrug off negative data such as yesterday’s trade deficit and house price data as the sovereign debt crisis spanning from Ireland to Spain, Portugal and Italy continues to cast it shadow shaping global currency markets and pulling down the Euro. The latest concerns have been the downgrading of Ireland by Fitch ratings agency and continuing disagreements between Eurozone leaders.

Pound Sterling – UK Markets

As expected, the Bank of England yesterday maintained interest rates at 0.5 percent and monetary policy unchanged. The Pound did move down against the Dollar on Thursday afternoon but is making back ground once more. Sterling is looking like it will end the week higher against the Euro as the ongoing resolving of the budget and rescue package in Ireland has affected the single currency. The Bank of England minutes due in two weeks time will illuminate further the interest rate decision revealing the split in voting and the discussions that took place on the lingering problem of over-inflation. Producer Price index output data this morning which shows the price changes in UK manufactured goods showed a year on year rise of 3.9 percent.

US Dollar – US Markets

The Dollar experienced an initial rise on Thursday on the back of dropping jobless claims, but has since been dropping against both Sterling and the Euro since the second half of Thursday. Jobless claims fell by 17,000 to 421,000 beating an expected drop to 425,000. The week is ending with some significant data due that could move the markets should it either disappoint or over-achieve. US trade balance data is due with an expected deficit of $43.8 billion and University of Michigan confidence for December is expected to increase to 72.

Euro – European Markets

Ongoing concerns about Europe’s debt crisis are continuing to weigh on the single currency following the downgrade of Ireland by Fitch’s rating agency by three notches to BBB + with a stable outlook. Fitch has said that the downgrade is in response to the restructuring of the banking system and risks to future growth in Ireland. The Irish opposition have also announced that they will vote against the bailout package when it is voted on again next week although as they did not manage to prevent the passing of the budget this may not actually achieve its prevention - but still has potential to influence currency markets highlighting the inherent difficulties in Ireland. Differences are also still acute between European leaders over the size and form of the rescue funds required and how this will affect borrowing costs for individual nations.

Other Currencies – Highlights

China’s growth for November has come in higher than expected adding to inflation fears. Exports are up 34.9 percent from a year earlier compared with an expected 25 percent with the controversial trade surplus widening by 15 percent from a year ago. This will add fuel to the fire in terms of the debate about China’s currency policy and whether their low currency makes it hard for other nations to compete in the export market. November’s inflation figure released on Saturday is forecast to be at over a two year high and well above target. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.