The ongoing debt crisis in the Eurozone weakens the EUR against GBP and USD
Yesterday’s Eurogroup meeting managed to indentify principles as to how the EFSF might be leveraged with first losses indemnified by between 20% and 30%, but real concerns remain that this degree of leverage will not be enough should the fund be required to bailout Italy. The measures fall short of the €1 trillion agreed earlier and there is increasing pressure from finance ministers for the ECB to lend directly to the IMF. Failing that, eurozone leaders seem to be pinning their hopes on creating co-investment funds to allow private sector investors to participate. The Eurogroup signed off on the next tranche of aid to Greece and the travelling circus now moves on to the Heads of State meeting on 9th December, where it is rumoured a €400 billion bailout for Italy will be discussed.
Further gloom was added by the Autumn Statement, which saw the Chancellor slash growth forecasts for next year as current spending was reduced in order for the government to meet its borrowing targets. The General Strike called today is likely to cause some disruption to the UK economy although it is hard to tell whether the government’s £500 million output loss forecast will be met.
The euro fell below $1.33 as London markets opened although it seems that $1.3250 is being protected for now amid talk of an options barrier in place. A break through $1.3250 would see the euro gap lower with support then found at the October low of $1.3145. Euro-sterling is back below £0.8540, but that reflects euro weakness rather than any independent sterling strength.
Oil prices fell as a rise in US crude inventories dampened sentiment. The front Brent contract managed to fall below $110 in early trading, but still remains above October’s $100 lows.
The monthly payrolls guessing starts hardening up today with the publication of the ADP employment survey. This is the least worst of the pre-payrolls surveys which is why the market pays it such attention. The survey has a tendency to overshoot in November so a larger than expected rise should not be interpreted as signalling a strong payrolls outturn on Friday. The risk is that the market overreacts to a strong reading only to be disappointed in due course with a resultant sell-off in the dollar and equities.
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.