Papandreou and the Greek Government passed their no confidence vote yesterday giving support to the likelihood of the passing of austerity measures next week, which is fundamental to Greece gaining the second bailout package as stipulated by the EU. The chances of being rescued by the EU/IMF have now increased greatly however there is still a long way to go. The austerity measures that need to be implemented will be harsh and the mixture of spending cuts, the sale of Government assets, increases in taxes have been described as the “perfect toxic cocktail to achieve zero growth”. Even with the aforementioned measures and the “second bailout” how does Greece get to being a viable and self sustaining economy? My contention is that they won’t and we’ll be speaking about a third bailout some time down the road for the Hellenic state.
We saw an uptick in EUR/USD yesterday as was suggested and this carried through to the Asian session with risk appetite boosted by the announcement from Greece. We’ve seen the EUR/USD pair come off slightly going into the European session this morning. GBP/USD has remained steady with potential to the upside for the pair I feel, again tracking the EUR/USD move with gains overnight and a slight retracement this morning.
Out of the US yesterday we had the Existing Home sales figure which was down 15%, showing that the economic recovery is still off course. One reason suggested for the figure was what caused the housing boom in the US and the start of the sub-prime fiasco was loose lending and that things have now gone too far the other way with restrictive covenants now in place preventing a recovery in the market. This coupled with general gloom in the US economy, lack of job creation; and the debt ceiling issue are all weighing on the dollar. I don’t see a marked improvement for the US dollar anytime soon.
Sterling is still being ignored. Public sector net borrowing was down 6% from a year ago, granted it was helped by a jump in tax receipts, and stands at 17.4 billion. This is improvement whatever way you look at it. We have the Bank of England minutes out today which is now what the markets pay closer attention to as the likelihood of an Interest rate rise is still a long way off in my opinion. I think we’ll see it before the year end and not in 2012 as many are suggesting. Expect volatility upon the release on GBP/EUR and Cable and it may be to the downside for the pound. We have industrial new orders and consumer confidence out of the EMU today. The consumer confidence survey will be interesting and anything below -10 will weaken the Euro, however I don’t expect there to be any major adjustment.
The main figure out of the US today is the Fed interest rate decision followed by the Fed press conference at 12.30 in Washington. It’s likely they’ll keep the benchmark interest rate close to zero and will likely keep it at this “for an extended period”. They have a tough balancing act of instigating growth whilst getting their fiscal house in order. I think we’ll see further dollar weakness over the coming days with GBP/USD continuing to the upside after finding support.
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