UK Prepares For Spending Cuts
New UK Chancellor George Osborne is to reveal details of £6 billion worth of spending cuts today. Last week’s volatility in the currency markets looks set to continue with news over the weekend of Spain’s first bank bailout.
Pound Sterling – UK Markets
The strong stance taken by the new Chancellor in spelling out the details of £6 billion worth of cuts today may help investor confidence in the Pound which has been gaining on the Euro so far this morning. The announcement is part of the coalition government's attempt to eliminate the bulk of the UK's £156 billion budget deficit over the next five years.
Also today, British Airways cabin crew begin their five day strike over jobs, staffing levels pay and benefits likely to cause more losses for the airline.
There is no economic data out in the UK today so movements are likely to be down to how the budget announcements are received as well as larger market themes.
US Dollar – US Markets
There are several US reports due out this week. April statistics for factory goods, home sales and consumer spending are expected to show a rise, indicating that the U.S. recovery was strengthening before the European debt crisis rattled global financial markets.
It has been suggested that the Dollar’s recent long term rise against the Euro and other major currencies could negatively affect earnings of global US companies such as Coca Cola and McDonalds. These multi-nationals earn a large proportion of their income outside the US which is denominated in currencies that have all fallen against the Dollar.
Euro – European Markets
Continuing problems in Europe are keeping the Euro under pressure and it has continued its slide against its major counterparts.
It was revealed over the weekend that the Bank of Spain has acted to give its first Government bailout (550 million Euros) to one regional lender, Cajasur, causing shares in Spanish banks to fall today. Cajasur was heavily exposed to the collapse in the Spanish property market.
Other Currencies – Highlights
Talks between China and the US open today on China’s currency policy. China has kept the Yuan pegged to the US Dollar for the last two years. The Chinese President has stated that China will move gradually and independently in making any changes.
The South African Rand dropped to a six month low yesterday, prompting investors to buy the currency which has now begun to rise for the first time in three days.