In a market where very few assurances are being made, one thing is certain; volatility will continue throughout the week. Despite international leaders stating action will be taken in an attempt to preserve financial stability and restore economic growth, investors worldwide remain concerned. If the Federal Reserve announces that a third round of quantitative easing will be initiated or Germany shows forward initiative to hold the eurozone together then we would all sleep a little easier. However, the longer we go without action, the longer leaders procrastinate, the closer we come to a disastrous conclusion.
Pound Sterling – UK Markets
The British Chambers of Commerce have once again released a statement urging the government to do more to stimulate growth, whilst continuing with the cuts currently in place. However, for this to occur it suggests a 1p cut in the National Insurance paid by employers and for the 50p rate of income tax to be binned. Both of these suggestions have been beaten around the press for some time, but once again it appears as though no one is willing to stick their neck out and make the changes; a delay that could prove costly in the future.
With the majority of leaders worldwide continuing to give ‘wishy washy’ statements, Chancellor George Osborne has at least signalled some intent by announcing we only have 6 weeks remaining to save the euro. This appears to be an extremely bold statement and one that leaves many sceptical. Sterling however continues to ride the waves of international volatility and is as always a sitting duck when it comes to market data.
US Dollar – US Markets
The week ahead may prove to be one of the sternest tests yet for what many believe to be a struggling economy. New home sales, consumer confidence and second quarter GDP figures are all due. Collated, these figures will undoubtedly signal whether the US is slipping back into recession or making a snail paced recovery. The first test comes this afternoon when new home sales figures are announced. Many economists feel that data will show a slight reduction. However, you can’t help but feel any improvement on this, big or small will be welcome relief to the US.
Euro – European Markets
How many ways can one say ‘in progress’? Well, news coming out of the eurozone now suggests that the latest Greek rescue plan is “taking shape”. Judging by what is being blasted around the press today I am not the only one growing tired of empty promises. The latest bailout is expected to involve a 50 percent write-down of Greece’s massive government debt. There will also be an increase in the size of the eurozone bailout fund to 2 trillion euros. However, what concerns me is the nature of the cuts being implemented in Greece. Whilst they will receive a bailout package of epic proportions, in doing so they also cripple the economy and essentially starve it of any growth whatsoever.
If this weeks bailout goes according to plan we would expect to see the euro strengthen – not dramatically but there should be some relative stability. Also, those currencies that have been negatively affected by the ongoing crisis such as the Australian Dollar and the South African Rand should also see some of their losses removed.
Other Currencies – Highlights
The Australian and New Zealand Dollar’s have continued their decline against the majority of their most traded counterparts, be it for different reasons. The kiwi fell to the weakest level in six months against the yen after a report showed the country’s trade deficit was wider than estimated, adding to signs that the global economic slowdown is hitting the South Pacific nation hard.
The aussie also slumped to a nine-month low against the US Dollar before a report forecast to show business confidence in Germany declined to its lowest level in 15 months.
British Pound Suffers Losses Ahead of Tuesday's Critical Vote