Greek PM Survives Confidence Vote

Greece has been thrown a timely lifeline as Prime Minister George Papandreou’s new cabinet was approved in parliament. Voting came through at 155 to 143. Whilst this is a boost of confidence to the much under fire PM, MPs will now be asked to approve the austerity plans required for the bailout package. The bottom line is whatever austerity plans are proposed, the general public will be forced to tighten their purse strings.

Pound Sterling – UK Markets

Its no surprise to see that sterling has fallen to a near two-week low against the euro as the Bank of England maintained interest rates at a record low. With Andrew Sentence now out of the picture, it was revealed that only two members voted for a rate rise even though inflation held at its fastest pace since October 2008 last month. To be honest, we are slightly surprised that the market had not factored in all of the movements but apparently the expectation was that three members would vote for a rate rise.

US Dollar – US Markets

The Federal Reserve has continued their concerns over the overall government deficit with Fed Chairman Ben Bernanke leading the call. It is an issue that is causing a heavy feud in government with some stating that acting to quickly on the deficit would chock off a recovery that is being halted by an unemployment rate that still sits above 9 percent. With interest rates near zero, if the economy weakens further there is little that the Fed can do to create new jobs.

Euro – European Markets

With the euro making strides against the pound you could be forgiven for thinking they are out of the woods. This is not the case I’m afraid. The EU’s top securities regulator is calling for more stress tests to be released and for the results to be made public. However, in contrast to last year’s tests which were carried out when the markets were open, it is stated that these tests would be carried out when the markets are closed. This is because of the market sensitivity associated with stress tests. Furthermore, although the euro made strides against various major counterparts, the US Dollar remained strong on speculation Papandreou will struggle to pass new austerity plans through parliament. This in turn would mean that the EU would be unwilling to offer the proposed bailout and essentially the euro would be back to square one!

Other Currencies – Highlights

With India’s now looking shaky, a relatively dry monsoon season will do little to ease fears. Low levels in rainfall will potentially lower farm output and accelerate inflation further. Overall this means export prices will become more expensive and see levels drop. This only adds to current fears that booming economies such as China and India will struggle in times ahead. Sticking with the Asian focus, overall, currencies across the continent gained for the second consecutive day. It comes as a surprise as the cause has stemmed from the expectation Greece will avoid a default which has boosted demand for the region’s assets. However, this to us appears slightly premature as there is still a very strong possibility that Greece may default should austerity measures not be passed through parliament.