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EUR on the edge still

EUR on the edge still

UK inflation was in line with expectations in August, with the annual rate coming in at 4.5%. However, UK households will see finances further squeezed in September as higher utility bills take effect, with rates pushing up towards the top of the Bank of England’s inflation report of 5%. So, with inflation likely to peak at 5% over the coming months, it seems very unlikely that further QE will be used to stimulate the economy.

However, Adam Posen the MPCs leading dove, yesterday called for an additional £100bn worth of QE – double what he has voted for in the recent rate setting meetings. This dovish rhetoric led to Sterling selling off overnight. Possen also made the suggestion of setting up a state bank to encourage lending to small businesses in order to encourage job creation. This may be a possibility the Government should be looking at with today’s job figures showing the biggest rise in unemployment for two years.

Rumours yesterday that China would be buying up Italian debt failed to bring down bond yields – 5 year bonds rose to record highs of 5.6%, up from 4.93% at July’s auction. It now appears unlikely that China will be entering into the bond markets of the distressed euro zone countries in the immediate future. The Chinese Premier Wen Jiabao stated at the World Economic Forum yesterday that “developed nations must take responsibility fiscal and monetary policies to prevent the spread of the Sovereign debt crisis in Europe”. Also, the PBoC adviser, Li, was also quoted as saying that China should not buy large amounts of European bonds.

With calls from the US, and now China, for European ministers to find a way to make the Euro work, we see Angela Merkel, Nicolas Sarkozy and Greek PM Papandreou holding a conference call today. It is expected France and Germany will state that Greece has their full support. They are also likely to urge Greece to deliver on its promises to gain access to the next tranche of bailout funds. However, the problem is that the euro zone needs more than just statements at the present time – it needs radical actions.

Those looking for a slowdown in the euro zone are likely to be disappointed in industrial production, which is expected to rise by 1.5% in July, propelled by a 4.0% rise in German production in the same month.

What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.

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