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Germany approves bailout fund

Germany approves bailout fund

Today’s European session includes two important updates for the Euro debt crisis. The bigger of the two, the German high court’s decision on the ratification of the permanent ESM bailout fund, has already been announced. German Constitutional Court rejected the call to block eurozone rescue funds and fiscal pacts and allowed ratification of the ESM/fiscal pact under certain conditions. Secondly, the European Union will outline the plans for a joint banking union where the ECB will be expected to lead the banking supervision. The banking union is intended to prevent future banking crises and allowing struggling Euro-zone banks direct access to the bailout funds.

In the UK, after the record trade deficit recorded in June, higher oil exports and falling imports in July saw the trade balance rebound to its lowest level since February 2011. The trade balance in goods narrowed to £7.1 billion, much better than market expectations of a £9.0 billion shortfall. In volume terms, exports of goods rose 9% to £25.8bn, while imports shed 2.1% to £32.9bn. For services, exports fell 0.9% to £15.6bn, while imports declined 0.4% to £10bn. UK trade will most likely continue to struggle in the face of the problems in the eurozone

The story across the Atlantic was different, however, as the US trade deficit widened for the first time in four months as the global economic slowdown impacted on the demand for US goods. The gap widened by 0.2% in July to $42 billion due to sharp decline in exports. The deficit would have been even greater had it not been for a 6.5% drop in oil imports.

On the FX markets, EUR/USD advanced to a four month high of $1.2871 and Sterling also recorded gains against the USD and is testing $1.61 early this morning.

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