European Financial Stability Fund strengths the EURO
European finance ministers last night agreed to safeguard Euro zone banks from the region’s worsening debt crisis. The assumption is that the European Financial Stability Fund (EFSF) will be used to lend funds to struggling banks. This news has led to the Euro rallying over night against both the USD and Sterling. However, I would expect this rally to be short lived because if the EFSF is now going to be used to protect Euro zone banks, it suggests that news of a Greek default may be close.
Today, Greece has done nothing to alleviate these fears as airlines are grounded, trains halted, schools closed and tax offices shut as state workers protested against further austerity measures.
The Euro zone’s private sector contracted for the first time in two years last month, as the core countries were dragged in to the impending crisis. Worryingly, as with the manufacturing PMI, the new business component experienced a steep drop off, suggesting that Q4 GDP may be heading towards contraction. On a more positive note, the survey showed that companies cut prices for the first time in over a year due to the tough trading conditions. This may alleviate fears at the ECB about above target inflation and provide the opportunity to loosen monetary policy.
In the US, Ben Bernanke, chairman of the FED, told congress that the recovery in the US is close to stalling. However, markets rallied after the speech at the suggestion of further quantitative easing.
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.