Germans to vote on EFSF


The euro rose yesterday as the European Financial Stability Facility continued down the ratification process yesterday with Finland’s law makers passing their vote yesterday with little problem. Today the vote goes to Germany’s Bundestag. It seems that Angela Merkel will have enough votes to be able to pass the legislation to allow the EFSF to buy peripheral debt like the ECB has been doing in previous weeks. This is not a vote on the ability for the EFSF to leverage the money they have to EUR 2 trillion as has been reported and so doubts will remain as to the viability of a plan that has really caused this uptick in global risk.

The single currency was also helped by inflation data from Germany that suggested that price levels were not falling as they had been expected. This tempered beliefs that the ECB will cut rates by 50bps at their next meeting. Indeed Jean-Claude Trichet stated that the ECB is “a very solid anchor of stability and confidence in the turbulent times we are experiencing” and that ongoing liquidity measures to refinance banks were “the most important of our non-standard measures”. It was always rare that a rate change would happen at Trichet’s last meeting and so the predictions now move to November’s meeting.

For once it seems that myself and Jose Barroso agree on something. In a speech to the European parliament yesterday he said that the Eurozone must move towards a full economic union. He stated that “It was an illusion to think that we could have a common currency and a single market with national approaches to economic and budgetary policy” and that euro bonds would be “a natural and advantageous step for all”. Maybe someone’s been reading these updates?

In the UK another member of the MPC has spoken on the prospects of further quantitative easing. David Miles said that “The case for quantitative easing has become in my mind quite finely balanced…It wasn’t quite as closely balanced a decision two or three months back, before we really got the bad news over the summer”. We are expecting that the Bank of England will vote to increase asset purchases by £50bn at their November meeting once they see that inflation expectations are due to tail off as we move through 2012.

News today will remain focused on the Eurozone with that German vote and Italy’s first bond auction since the country’s credit rating was downgraded.

Indicative Rates Sell Buy
GBPEUR 1.1476 1.1503
GBPUSD 1.5620 1.5645
EURUSD 1.3594 1.3620
GBPJPY 119.53 119.82
GBPAUD 1.5919 1.5948
GBPNZD 2.0064 2.0096
GBPCAD 1.6115 1.6145
NZDUSD 0.7779 0.7799
GBPZAR 12.28 12.33
USDZAR 7.8506 7.8949
GBPPLN 5.0774 5.1103
EURJPY 104.05 104.34

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