Shockwaves for the Euro as Germany sets new bans on financial speculators
The Euro has hit a new four year low against the Dollar as traders were alarmed by a sudden ban on naked short selling and naked credit swaps by Germany’s financial regulator last night. This unexpected move has rattled investors and calls into question the resilience of Europe and whether there may exist even larger economic problems that have not yet come to light.
Euro – European Markets
The Euro has plummeted to new lows and stocks and commodities around the world dropped following the unexpected announcement from German financial regulators last night.
This decision will put a temporary ban until March 2011 on both naked short-selling (investors speculating on declines in companies they don’t own) and naked credit default swaps on Euro area Government bonds. This was with immediate effect from midnight last night and has been interpreted as a move of panic by some. The decision bans speculators from bets against European Government bonds and banks – in essence prevents them from both exacerbating and profiting from the debt crisis. However, this is a cause for concern to investors who may not be able to hedge their European holdings or sell assets as the region’s debt crisis worsens.
German Chancellor Angela Merkel has spoken out about the deep Euro crisis stating that it is the greatest crisis for Europe in decades and the Euro itself is in danger, requiring the drastic steps which are being taken to address exceptional volatility.
It is thought that other Euro-zone nations may follow the move by imposing similar restrictions.
Pound Sterling - UK markets
Sterling has traded near to its lowest level against the US Dollar in thirteen months. The new German restrictions on investors are spurring demand for the Dollar as a safe haven currency.
The Bank of England has released its May minutes. This suggests that the UK faces increased inflation pressures from oil prices. The interest rate and APF quantity were left unchanged in May. Despite inflation coming in at over 1 percentage point above the Bank of England’s target, the economy was deemed as showing signs of recovery.
The Pound remains in a strong position against the Euro. If you have a GBP / EUR transfer to make, speak to your broker to discuss taking advantage of current movements.
US Dollar – US Markets
The US Dollar has again benefited from the most recent blow to the Euro following the new investor regulations.
This comes alongside more positive data for the recovery and reinvigoration of the world’s largest economy. A report is due today on the US cost of living which experts are suggesting will come in at only a 0.1% rise for April – signaling a low chance of high inflation levels similar to those seen in the UK.
It has also been revealed that Wal-Mart, the world’s largest retailer, cut prices during the recession which boosted its sales against competitors.
Other Currencies – Highlights
The Baht has further weakened as Thailand descends into deeper political uncertainty as explosions took place in Bangkok. It is thought events could significantly damage foreign direct investment and Thailand’s BBB foreign-currency credit rating.
Events in Germany had implications for Eastern European currencies with the Polish Zloty depreciating to its lowest levels in more than a week.