Another day of highly volatile activity is expected in European markets as concerns grow amid eurozone debt. However, as of GMT 09:00 this morning share prices spiked in early trading taking the euro with it. Subsequently, all of sterling’s hard work has been destroyed in a matter of minutes – it seems to be the way at present.
Pound Sterling – UK Markets
Despite the depressive state of the UK economy and consumer fears that the countries economic woes will have dire consequences on their finances it appears as though our appetites haven’t been affected. Whilst there has been less demand for high street goods in August, food sales were up 1.4 percent in the three months leading up to August. However, non-food sales were down 1.5 percent in the same period. With internet sales also up some are suggesting that poor weather through the summer months has dampened our need for outdoor excursions.
Further negativity has struck our services sector as Purchasing Managers Index figures fell from 55.4 in July to 51.1 in August. This was a shock to the markets as economist had predicted the data to come in at around the 54.3 level. Whilst a figure above 50 still indicates growth there is little doubt that we are in steep decline. Whispers of quantitative easing appear to be making strong headway through the rumour mill but Mervyn King will have to do some serious selling in order to make the thoughts a reality.
US Dollar – US Markets
It is usually the UK that rides the waves of turbulence. With little data rearing its ugly head in the US yesterday it did just that. Early on, the US Dollar was relatively weak. However, late in the day a large deal filtered its way through the markets causing dollar strengthening and consequently weakening the euro. But as we are so very aware at present, nothing is certain and come early morning, the dollar, along with sterling fell foul to a serious euro canter. It will now be down to the world’s largest economy to fight back with manufacturing data being released at GMT 15:00.
Euro – European Markets
The European Central Bank’s bond buying programme has been called into question as yields on Spanish and Italian debt began to rise again. The ECB will now face pressure as the uncertainty grows. It is unlikely that they will be able to afford to keep up its purchases to keep a lid on market pressures. Despite early strengthening in the euro, it remains sketchy at best as to how long it will be able to maintain such an advance before it succumbs to market pressures.
Other Currencies – Highlights
The Swiss National Bank has finally stepped in and taken the bull by the horns. A statement was released identifying the overvaluation of the franc as an ‘acute threat to the Swiss economy and carries the risk of a deflationary development’. The SNB has subsequently set a minimum exchange rate of 1.20 versus the euro. It caused the franc markets to spike with immediate effect.