An interesting day in the markets yesterday with Sterling making some headway against both the Euro and the US Dollar after yesterday morning’s UK PMI Services data showed an unexpected rise in Junes reading. This coupled with the worse than expected EU retail sales data and Germanys PMI Services left the door open for Sterling to capitalise and make back a small amount of its recent losses.
The problems within the Eurozone look set to continue with Portugal being downgraded into junk territory by ratings agency Moody’s. Moody’s feel that Portugal will follow Greece in needing another bailout at some point in the not too distant future. This will undoubtedly add pressure to the single currency and the negativity surrounding European debt levels. There can only be so much that the EU can put a positive spin on and sweep under the carpet but for me the cracks are already there and becoming ever more visible.
This latest downgrade and the fact that over the coming months I would expect to see more data and news about European debt fears will only add pressure to the Euro and allow the US Dollar to become the main beneficiary of any Euro weakness. Already we have seen EUR/USD move overnight from 1.45 down to the mid 1.43’s. This won’t particularly be good news for the US who themselves will be fairly keen to see the Dollar weaken for their own benefit.
Undoubtedly, the rumblings of the so called “currency wars” will materialise again as nations will have to be seen to be doing the right thing by markets and not deliberately letting their currency weaken to give them any unfair advantages.
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