Clouds Gather over Europe

Volcano’s are not the only eruption to be causing a storm in Europe at the moment. A conglomeration of events appear to be taking place at present with the European Union facing a debt crisis that could bleed through Greece, Spain and Portugal. Also, at a push, Belgium and Italy. Take this and add to it the search for a new leader of the International Monetary Fund and Ash Clouds threatening to shut down European air space and you have a mind boggling series of events threatening to topple the euro. Pound Sterling Word has it that the government was meant to be making spending cuts for some reason. I think it may have something to do with the spiralling levels of debt that our nation is facing. However, with this in mind it appears something has gone wrong along the way. Current spending by the central government hit £54.1 billion last month, a 5 percent hike from this time last year. Furthermore, with the recovery plans predicting a snail-pace like return to normality it is no wonder that the Chinese downgraded UK’s credit rating from AA- to A+. However, as was in my opinion quite rightly stated yesterday, it’s time to move on from old cliché’s. Yes the UK is underperforming, but this may not be reflected in the markets. The bottom line is with the state of the Euro looking far more uncertain sterling is seeing short term gains against the single currency. Dollar Whilst the US has problems of its own, in the short term investors see buying potential in the Dollar which could see the currency strengthen slightly. The Dollar index reached a seven week high before reports due to be released tomorrow are expected to show that the economy is recovering at a faster pace and initial jobless claims decreased for the third consecutive week. On the other hand, global fund managers are keeping long term bets against the US Dollar. Whilst the Dollar is expected to rally from time to time, low interest rates will force investors to seek alternatives to US Bonds. Euro The façade surrounding Greece could create a debate that could fill the broadsheets a hundred times over. However, as we speak Greece may be forced to sell up to 50bn euros worth of state owned assets to push forward its privatisation drive. If Greece were to default a complex domino effect would take place. If like many you have been wondering why surrounding nations are so keen to avoid this from happening the answer is simple. A default would hurt major French and German banks with Greek subsidiaries, potentially causing a crash in share prices. Other Currencies – Highlights In recent days we have been commenting on the yo-yo nature of the Canadian Dollar. However, reports today show that currency may be faltering as indicators suggest that the global economy may be faltering. The loonie as it is often known has weakened against 12 of its most 16 most-traded counterparts. The South African Rand broke back against the dollar after two days of losses. Commodities rebounded from the biggest drop in nearly two weeks and Greece’s endorsed budget cuts helped push the Rand into a strong position.