Back in 1999 we all shared the view that the euro would not work unless there was fiscal union. Perhaps we are now being proved correct. Whilst the single currency still clings on for dear life, Merkel and Sarkozy are only now considering the above as a possibility. Various peripheral nations such as Austria, Finland and the Netherland seem less certain as it would mean giving up their political independence. The bottom line is that France and Germany would have to be the piggy bank in all of this.
Pound Sterling – UK Markets
Rather than spin my usual lines about negative data seeping out of the UK, I’m going to be positive today. Our nations manufacturing sector held up surprisingly well this month. Surveys found a positive balance of 1 percent in orders. Furthermore, due to the weak pound exports also picked up. Could we be seeing Mervyn King’s crystal ball predictions for the economy being proved correct? Only time will tell and I will be the first to warn anyone getting ahead of themselves that with the markets being so volatile there will certainly be more ups and downs ahead.
US Dollar – US Markets
Federal Reserve Chairman Ben Bernanke is as we all know due to speak on Friday. However, with little known about whether or not he will intimate QE3 is on the cards, the US Dollar is likely to be on the back foot until then. Investors are increasingly worried about the state of the eurozone and the US and thus they are going to be taking cover in safe haven assets such as gold and the Swiss Franc, even though the Swiss Central Bank will be attempting to beat them off with a stick. So, it is do I or don’t I for Bernanke as the possibility of QE3 draws ever nearer.
No more good news for US Dollar seller’s I’m afraid as new home sales fell for the third month in a row in July. Sales fell 0.7 percent last month to a five month low. This coupled with high unemployment are severely hampering the US recovery.
Euro – European Markets
Further to this, Finland is now threatening to leave the bailout programme if their request for collateral on Greek debt was turned down. In response to all of this, Greek Prime Minister George Papandreou has admitted that the nation could use its own land as collateral. Non-cash reserves such as gold, industrial assets and real estate could be used. You can almost envision individuals having to give up vital organs in return for cash in years to come (of course I jest).
On a more positive front, the eurozone economy continued to grow this month despite the economic uncertainty swamping the markets. The purchasing manager index came in at 51.1. Values above 50 can be seen as bullish for the euro. However, with manufacturing data coming in below par, and investor confidence plummeting, the outlook remains gloomy for the single currency.
Other Currencies – Highlights
Overhanging debt and borrowing levels have pushed rating’s agency Moody’s to cut Japan’s long-term sovereign debt rating from Aa3 to Aa2. Japan, currently the world’s third largest economy has suffered in the aftermath of the 2009 global financial crisis and this year’s earthquake and tsunami. The nation is currently in recession after the economy contracted for three consecutive quarters. The yen could come under increasing pressure over upcoming weeks as the force of public debt puts the markets under increasing pressure.
Dollar Weakens as Fed Rate Cut in July Seems Imminent