A Party Amidst A Storm

President Barack Obama will today celebrate his 50th birthday. Perhaps the White House’s eagerness to resolve the debt crisis the other day had little to do with the August 2nd deadline, but in fact a side show that allows the President to celebrate in relative tranquility. I only jest, of course. However, the US remains sketchy at the very best and as one of our avid readers, Geraldine, quite rightly put it yesterday; “if the US were to fail, we would all catch a cold”. I couldn’t agree more. Lets just hope once Obama puts his celebrations to rest, he focus’s on the broader issues facing the US.

Pound Sterling – UK Markets

It’s a shame interest rate decision day in the UK isn’t more exciting. As we all are quite aware now, rates are set to be held at a low of 0.5 percent. This view has been echoed by the majority of economists who now feel that a rate rise will not occur until next year. However, a growing number now feel that rates could rise to as high as 1.5 percent by the end of 2012 – I am yet to be convinced. If you are interested in interest rates decisions, the announcement in the UK is due at GMT 12:00. On a more positive front, an industry survey has revealed that the UK service sector expanded in July at its fastest rate in four months. The index rose to 55.4 in July from 53.9 in June. Bear in mind that a figure above 50 indicates growth and can be seen as positive news for sterling. But, as with the UK at present we steal from Peter and give to Paul. Even though the service sector grew, the survey also indicated that jobs were cut despite increased activity.

US Dollar – US Markets

As the Presidents birthday celebrations get under way, the Federal Reserve continues to rumble like an active volcano in the background. We are now under the impression that the Fed is considering increasing monetary stimulus in an attempt to counteract a slowdown in the US economy. Following this, the US Dollar continued its downturn against the euro for the second consecutive day. Adding to its economic woes, data also revealed that initial jobless claims rose and the unemployment rate remained above 9 percent. This news caused the dollar to drop against the majority of its major counterparts on the back of a consistent decline against the euro.

Euro – European Markets

The eurozone’s third largest economy, Italy, has suffered a huge setback as economists worldwide expect the nation to default unless there is huge upturn in growth. This looks unlikely as in the first quarter of this year its economy grew by just 0.1 percent and further growth is expected to be sluggish. Furthermore, the nation’s debt is expected to increase exponentially by 2012 if bond yields stay above 6 percent and growth remains stagnant; a likely scenario given the current economic situation. In a press conference yesterday, Italian Prime Minister Silvio Berlusconi addressed parliament stating the economy was “strong” and that the nation’s banks were “solvent”. However, take from this what you will; it was clearly an attempt to restore confidence which has been severely battered over recent days. Whilst Spain is by no means a rock solid economy, it has been given a boost after economists revealed it is unlikely to default. Details of the current situation will undoubtedly unravel over the coming weeks on a day-by-day basis.

Other Currencies – Highlights

The Yen has fallen for the first time since March against all if its major counterparts. However, rather than being by accidental cause, the government initiated a plan that involved selling its currency into the foreign exchange market to stem gains that threaten the nations economic recovery. As a predominant export nation, Japan relies heavily on its products being affordable to the foreign market. The Australian has declined for the sixth consecutive day against the majority of its major counterparts as it appears growth in the nation down under is waning. This has prompted investors to suggest that the central bank is likely to cut interest rates in October.