Ireland is still making the headlines as its liquidity could have huge implications for the Euro. Irish corporate tax is currently 12.5%, well under the Eurozone average. The Irish see low corporate tax as a key tool for driving economic growth, but other Eurozone partners, notably France and Germany; want to see the rate rise as a condition of any EU bailout. Comments by government ministers and leading bank officials suggest that a bailout will eventually be requested and clients looking to transfer Euros would do well to speak with their broker to ensure they are protected from any adverse movements in the rates.
Pound Sterling – UK Markets
The Pound closed at €1.1734, dropping by 0.4% against the single currency. However, it reversed recent losses against the Dollar to close at $1.60138. The Organisation for Economic Cooperation and Development (OECD) has forecast a more pessimistic growth figure of 1.7% for 2011 than the Office for Budget Responsibility’s own projection of 2.3%.
In May, OECD was predicting UK growth for 2011 as 2.5%, but has trimmed its projection because of the risk of headwinds caused by the UK’s austerity measures. However, OECD has applauded the measures as an ambitious medium-term plan which will significantly reduce fiscal risks to the UK. In more positive news official figures have shown that UK retail sales rose in October, ending two months of decline. This positive statement may give strength the GBP
US Dollar – US Markets
The Dollar has retreated significantly from recent gains against the Euro. It closed at $1.3647, dropping 1.2% over the course of the day. Speaking in Frankfurt later today, Federal Resevere Chairman Ben Bernanke is expected to defend the Reserve’s QE policy. In his view, nations that undervalue their currencies may eventually inhibit growth around the world and risk domestic financial instability.
Euro – European Markets
The Euro closed higher against Sterling, the Dollar and the Yen yesterday as markets suspect an Irish bailout solution is nearing. Sentiment towards the Euro has also been helped by better than expected German producer price data, suggesting that the European recovery is progressing.
The German producer price index showed a gain of 4.3% on October last year, following on from a 3.9% increase for the year ended in September, beating market expectations. The data, together with optimism over finding a solution to the Irish crisis is likely to boost the Euro in the short-term.
Other Currencies – Highlights
Sweden is an EU member, but not a Eurozone country. RBS has issued a warning that it would be wrong for the Riksbank to use higher interest rates to try to cool the Swedish property market.
With some home owners with debt burdens of 46 times their disposable income and 60% of Swedes on variable rate mortgages, any rate increase will be keenly felt.
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