Will China step in?

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The markets rose yesterday on news reports suggesting that China is considering contributing to the European rescue fund. Wen (the finance minister) indicated that China could invest some of its massive foreign currency reserves however he fell short of making any firm commitment to assist.

The markets rose on his comments; however they fell later when Jean Claude Juncker cast doubts on the success of the Greek debt talks ending the day 0.9% down against the dollar. Juncker described the on-going Greek debt talks as “ultra difficult”. The negotiations need to be completed by 20th March to prevent a default. Juncker also said that steps taken by EU leaders on Monday to toughen rules on the fiscal discipline are “largely insufficient”.

On some positive new for the Euro – Spain and France both sold bonds at interest rates below those seen last month.

Meanwhile in the UK…

MPC Member Posen spoke yesterday revealing he had pushed his colleagues to extend quantative easing beyond government bonds. He wants the bank to buy corporate debt in a wider series of reforms to boost lending. In a comment on Twitter, Posen remarked “are the banks reluctant, risk-averse jerks” or are there more fundamental problems with lending.

The MPC is expected to announce another £50bn of asset purchases at next week’s meeting, though only UK government bonds are to be purchased. The aim is to take the assets from financial services which will then be invested in other assets such as corporate debt; in turn this should lower the interest rate and boost borrowing.

According to reports this morning Britain’s economy has entered a mild recession and will shrink in 2012. With predictions of a fall of 0.1% this year due to the unresolved crisis which is weighing heavily on the exports and business confidence, before recovering strongly to grow by 2.3% by 2013. The return to growth will not stop unemployment rising as this is expected to rise to 9%, unemployment is to remain 1% higher than before the crisis.

The debit crisis in Europe is still the main driving factor for currency fluctuations across the board.

To find out how global affairs can affect your currency transfer contact Moneycorp on 0207 828 7000. You can also send your enquiry by email on comparemoneytransfer@moneycorp.com.

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