Fresh Fears For the Euro Banks
A generally quiet day yesterday with most rates range bound due to the US holiday but overnight we have seen a new sell off of the Euro. Recently pushing 1.30 against the USD it has fallen to below 1.28 overnight losing ground against most major currencies and allowing sterling to climb back into the 1.20s. The fears stemmed from a report in the Wall Street Journal suggesting that the recent stress tests of the strength of major European banks underestimated some lenders’ holdings of potentially risky government debt. The markets are still very jittery and with very little data out today we could see the Euro in a venerable position today.
Sterling has not fared too well over the last week with some data coming in quite disappointing and calls for the Bank of England to step in with a fresh batch of quantitative easing. The MPC meeting on Thursday should give a little more clue to the thinking of the BoE but if recent communication would indicate they are ready to step in if needs be but not willing to do so unless it is clear that it the right option.
The Reserve Bank of Australia left rates on hold last night at 4.5% and the Bank of Japan kept the rates on hold at 0.1%, neither or these shocked the market although both banks said they would be willing to act should they need to.
President Obama announced a $50bn infrastructure plan last night to build roads, railways and airport runways in an attempt at tackling the US’s unemployment rate which was accepted quite well by the markets although critics are denouncing it as just another drain on taxpayers’ money.
The president has taken quite a bit of flak recently for trying to spend his way out of the recession and although the recent announcement has been taken as a positive for the global recovery it only takes another wave of fears over the US sovereign debt and the extra spending packages could end up hurting the USD. Today also sees the publication of the Fed’s Beige Book which should give a clearer picture of the state of the US economy
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