In a complete turn of events German Chancellor Angela Merkel reversed yesterday’s views as she has apparently come to an agreement with French President Nicolos Sarkozy over the Greek debt crisis. Whilst it is still unclear what this ‘agreement’ entails, headway has been made. The summit will reach its conclusion today with officials keen on agreeing a second bailout for Greece as well as preventing contagion that could quite easily spread to Italy and Spain.
Pound Sterling – UK Markets
With sterling still relatively out of the spotlight, economists have been quick to act on any complacency on our part by slashing our growth forecast by half a percent over recent months. Previous expectations forecasted our economy to grow by 1.8 percent in 2011, but this has now been cut to 1.3 percent. The UK economy is failing to grow at any meaningful pace.
To back this up, the Bank of England minutes released yesterday suggest that bearish economic data has pushed the rate-setting committee even further from the first step in increasing interest rates. In fact, some suggest that a rate rise will not occur until the second quarter of next year; at the earliest. This has been reflected in consumer confidence. Our earlier forecasts appear to be taking shape quite nicely. Following an early summer boom, consumer morale has continued to fall throughout the year. This was reflected in June’s figures that showed the consumer confidence index fell four points to 51.
US Dollar – US Markets
As the White House approached the August 2nd deadline to increase the debt ceiling in the US, President Barack Obama has signalled that if needed a short term increase could be passed. With D-Day approaching, even if lawmakers agreed to pass the increased funding, there would not necessarily be sufficient time to implement it. Long term, it is looking increasingly likely that the deficit will be increased and America will retain its triple A credit rating.
Markets are fixated on the debt crisis. Even after Apple hit another all time high in the stock market, Wall Street came to a grinding halt yesterday. It ended it’s best rally since March as the crisis overshadowed major movers. Further afield, the sovereign debt crisis in Europe is adding to problems and both appear to be weighing heavily on stocks.
Euro – European Markets
Economists have gone so far as stating that today’s meeting is not simply about Greece. More so, European Commission President Jose Manuel Barroso said it was time for leaders to “make good” on their promise to save the single currency. Whilst this is a little bit dramatic for my liking, the main aim is for Greece to avoid a disorderly default. Many are still in the view that it is only a matter of time until Greece defaults, given its fiscal instability and the scandal surrounding its initial involvement in the euro.
Be prepared to see some highly volatile markets today. Ideally, your broker is best positioned to keep a close eye on your chosen pairing. Remember, at Currency Solutions we are here to assist you through what can often be a tough decision making process, as well as offering in depth market information.
Other Currencies – Highlights
Following the release of Chinese manufacturing data yesterday the Australian and New Zealand Dollar both fell overnight. The currencies down under have been on a rollercoaster ride of epic proportions over recent months as currencies linked to commodities are still the most volatile around.
Asian currencies today broke recent declines over optimism European leaders will break a deadlock over a new Greek bailout bolstered demand for emerging-market assets. In fact, the Asian Dollar Index hit a 14 year high.