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Eurozone is still far away from a solution for its debt crisis

Eurozone is still far away from a solution for its debt crisis

Asian stock markets continued to sell-off overnight with few investors willing to take any positions due to eurozone debt problems. Today there is a general dearth of economic data to provide any fundamental direction.

Yesterday’s meeting between Merkel, Sarkozy and new Italian PM Monti saw the German Chancellor continuing to resist any issuance of Eurobonds. Merkel argues that a common interest rates for all eurozone countries would send the wrong signal. She also resisted French attempts to get the ECB to increase its secondary market bond purchase operations. While European leader can agree on a better co-ordination of economic policy, that will only deliver results in the longer-term. The market right now is looking for more immediate relief, especially from the ECB.

French consumer confidence proved a little softer in November than expected with the headline measure falling by 3pp to 79, against expectations of a 1pp fall. That put the index back at lows last seen in February 2009. With a variety of ECB speakers admitting overnight that the eurozone slowdown will be much longer than expected, we believe that the chances of a rate cut in December have increased. We look for a 25bps cut, that would fully unwind the Spring/Summer tightening. With eurozone growth forecasts for 2012 being revised lower, there is a risk that the Governing Council decides to ease by more.

The euro found support at $1.33 against the US dollar this morning, retreating to lows last seen in early October. The single currency was not helped by a sovereign downgrade of Hungary as well as the decision to cut Portuguese debt to junk status.

Currency markets are also wary of further attempts by the BoJ to intervene to weaken the yen. Japanese Finance Minister Azumi stated that the ministry has been watching for signs of speculative moves in foreign exchange markets and would take steps to rein in any rise. With the strength of the yen increasing deflationary pressure on the economy and weakening corporate profits, the government may decide that is has little to lose by triggering another round of intervention.

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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