The Euro is back in the firing line today as press articles over the weekend suggest it may well be a future of doom and gloom for Italy. Italy, currently the Euro zones third biggest economy is heading ever closer to needing a bail out. Italy currently has a debt value of 120% of its GDP, the second largest in the Euro zone only to Greece. Recent increases in interest rates by the European Central bank are putting Italy under pressure and it would only be a small further increase that could well tip the scale. Being the Euro zones third largest economy you would expect this to have severe repercussions if Italy had to request a bailout and would put the single currency under a huge amount of pressure.
The US Dollar currently has its own problems to contend with as the US Fed has barely two weeks before it runs out of funds to service its $14.3 trillion debt. Republicans have ignored the latest White House deadline for a deal on America’s debt crisis. Congress are said to be demanding what has been described as savage spending cuts without raising taxes to balance out the playing field. The White House is currently asking for the Treasuries statutory debt limit to be raised by $2.5 trillion by August 2nd to pay for government spending over the next two years.
So for this week, we expect a topsy turvy rollercoaster ride for the Euro as news filters through. Another look below 1.40 for EUR/USD is not out of the question and this could help Sterling achieve some of its higher levels against the Euro for some time. This week I would be looking for Sterling to achieve and maintain levels of 1.14 against the Euro as the single currency comes under a little pressure but I wouldn’t be discounting the ability of the single currency to bounce back quickly on any negative US or UK data.
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