Serious issues brewing for EUR
Overnight, rumours have increased that the Euro zone debt crisis will be overcome through a three pronged attack from the ECB, Greece and the European Financial Stability Fund (EFSF). ECB statements on Monday that they were keeping their options open for a rate cut, has been met with speculation that this could be pushed through as soon as the 6th October meeting. The other rumour circulating is that the ECB may re-start the covered bond programme in order to protect European banks which are exposed to the peripheries debt markets. This should help to protect them from an expected hair cut on Greek debt which could be as high as 50%.
Meanwhile, rumours have increased that the EFSF will be increased to €2 trillion using leverage. This would involve using a special purpose vehicle to issue bonds which, would then be used to buy European sovereign debt. This may be a method of creating a Euro zone bond whilst not calling it this.
The above speculation has helped to create a risk on environment; however, I would be cautious of being too optimistic as already there have been releases from some Euro zone policy makers criticising market perceptions and the proposed plans. ECB central bank policy maker Yves Merch has stated that; “These wild expectations only show that some people have lost the north,” Whilst talking about a possible rate cut.
Whilst in Germany the country most vital to solving the sovereign debt crisis, opposition leaders are preparing to battle against any amendments to EFSF and, Germany’s top judge has warned that no further fiscal powers can be submitted to Europe without a referendum.
In a rare bit of positive news, the Germany IFO was better than expected on both the current and expectations components. It did drop from its prior levels but to be better than expected was a little bit of a relief to markets.
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.