Italy Catching The Cold

There was always a concern that the European debt crisis would worsen, causing disease like contagion in the Eurozone. It now appears that this may be occurring. Investors are now issuing fears that Italy may be the next economy to fail. This revelation has emerged hours before Europe’s financial ministers gather in Brussels today to seek ways to shore up Greece.

Pound Sterling – UK Markets

Whilst on the face of it, you would be forgiven for thinking sterling has made up a little bit of ground over the weekend. However, investors and experts across the board are now stating that the UK’s recovery is fragile and vulnerable to an economic slowdown. Adding to this, the British Chamber of Commerce has gone as far to say economic growth for the foreseeable future is stagnant. Even a double dipped recession has been mentioned. Furthermore it is expected that the British Retail Consortium will tomorrow announce that retail sales fell by 1.4 percent in June. Perhaps we are now in a position whereby sterling’s dominance in the past is now well and truly over. Next step: Parity versus the euro?

US Dollar – US Markets

The dollar, despite its debt limit issues and record low interest rates is being forecasted to end its 13 percent slide over the past year. Five speculators believe that Europe’s debt crisis is discouraging bets against the dollar. The risk of a fragmented default is now looking greater in Europe than in the US. Banks are now following suit and are reversing earlier predictions of a dollar collapse. However, despite being given a positive forecast, the US cannot escape the fact that current growth is abysmal. The Federal Reserve are now expected to keep interest rates at record lows for the longest period since World War II. Until there is sustained growth in employment there is very little chance of a rate rise.

Euro – European Markets

With little else on the agenda for Europe, as mentioned the focus has turned to Italy. The euro has fallen against most of its major counterparts on speculation the European Central Bank is looking to expand a fund to include help for Italy. However, it is not as easy as simply expanding the fund. Italy is a very large economy and if it were to fail a totally different plan would have to be implemented to deal with the problem. The bailout fund itself may have to be doubled to 1.5 trillion euros to cover a potential crisis in Italy.

Other Currencies – Highlights

Whilst everyone else is worrying about weakening currencies, Brazil is faced with the opposite problem. The real continued to appreciate to a 12 year high versus the US Dollar. As one of the few FX brokerages in the UK to actively trade the Brazilian Real, feel free to talk to your broker about the progress of the worlds second largest emerging market. Further signs the global economic recovery is slowing, continues to hamper Asian currencies. The outlook is now gloomy for regional exports and damped demand for emerging market assets means downward forecasts.