So suggests an interesting article on the Financial Times website today.
The context: The current strength of the euro reveals that the markets are not overly concerned with the Portuguese debt crisis at present, or indeed with the eurozone debt problems in general. This remains the case despite almost daily news of credit downgrades to peripheral nations; most recently Greece and Portugal. With a decision on the EU bailout fund delayed until June, the debt crisis is unlikely to be resolved any time soon.
The unstable fiscal situation in Portugal is so bad that an interview on the Financial Times website mooted a highly controversial solution. It was argued that Brazil, Portugal’s former colony, should annex the struggling Iberian state. Portugal is a very low growth, high deficit economy with major governmental issues (currently doesn’t have one!). Brazil’s economy, by contrast, is set to boom again this year and is so large (in total GDP at least, not per capita) it could accommodate Portugal’s substantial and crippling debt with little trouble.
Granted, the comment was ‘tongue-in-cheek’ and was clearly designed to provoke a reaction. Such a solution is totally unprecedented and quite plainly there is no willingness from either nation to allow such a dilution to their national identities.
Nonetheless, the interview did treat the Portuguese issue with the urgency it warrants, and with the urgency we see returning to the markets. Our bet is that as soon as next week’s ECB rate rise is a thing of the past, market sentiment towards the debt issue will worsen and weigh on the euro accordingly. Already borrowing costs in the periphery are unsustainable; throwing in a 0.25% rise in the base interest rate is only going to send costs higher.
Richard Driver
Analyst – Caxton FX
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Showing posts with label G7. Show all posts
Showing posts with label G7. Show all posts
Wednesday, 30 March 2011
Friday, 22 October 2010
G20 meeting this weekend
The market seems fairly stable today as investors are hesitant to take out positions ahead of this weekend’s G20 meeting between the world’s financial leaders.
The US is raising the stakes in calling for countries to avoid using their currencies to gain economic advantage. US Treasury Secretary Tim Geithner, in a letter to the G20 finance pointed out that ‘emerging economies with undervalued currencies and solid reserves must allow their currencies to adjust in line with fundamentals.’ Of course, every financial leader of emerging economies will be looking to poopoo this as a weaker currency makes their exports much more attractive.
Leaders of more developed economies will be looking to strike some kind of accord to secure this agreement in principle, however pushing it through will be a lot harder in practice. It is highly unlikely that a binding agreement will be reached this weekend as heads of the developing economies will protest about the ability of countries such as the US and the UK to structure huge bailout packages.
In other news, sterling’s decline continues as it faces a sixth straight week lower against the euro. With the downward pressure associated with that fateful phrase “quantitative easing” in the UK and US showing little signs of abating, this trend is set to continue at least ahead of the Fed’s Nov 3rd meeting. Maybe if the French can protest for long enough, the eurozone’s debt issues will take their rightful place at the fore of the market’s focus.
Have a good weekend!
Tom Hampton
Analyst – Caxton FX
The US is raising the stakes in calling for countries to avoid using their currencies to gain economic advantage. US Treasury Secretary Tim Geithner, in a letter to the G20 finance pointed out that ‘emerging economies with undervalued currencies and solid reserves must allow their currencies to adjust in line with fundamentals.’ Of course, every financial leader of emerging economies will be looking to poopoo this as a weaker currency makes their exports much more attractive.
Leaders of more developed economies will be looking to strike some kind of accord to secure this agreement in principle, however pushing it through will be a lot harder in practice. It is highly unlikely that a binding agreement will be reached this weekend as heads of the developing economies will protest about the ability of countries such as the US and the UK to structure huge bailout packages.
In other news, sterling’s decline continues as it faces a sixth straight week lower against the euro. With the downward pressure associated with that fateful phrase “quantitative easing” in the UK and US showing little signs of abating, this trend is set to continue at least ahead of the Fed’s Nov 3rd meeting. Maybe if the French can protest for long enough, the eurozone’s debt issues will take their rightful place at the fore of the market’s focus.
Have a good weekend!
Tom Hampton
Analyst – Caxton FX
Monday, 16 February 2009
US dollar continues to perform well over euro
The euro strengthened over the US dollar by 0.02 cents on Friday but closed the week 1.05 cents down at the 1.2862 level. Investor's attentions had been focused toward comment from the G7 meeting of finance ministers in Rome, however a draft statement released late in the US session made no reference to specific currencies other than the Chinese yaun. Eurozone GDP figures released earlier in the day showed that the eurozone economy contracted by 1.5% in the fourth quarter of 2008 and 1.2% in the year. In the US the Reuters/Michigan Consumer Sentiment index fell.
In today's trading the dollar has strengthened over the euro reaching as low as 1.2729, as worries about the health of European banks has promoted risk aversion and lead investors to buy the greenback for it's relative safety. There are no major announcements due out in either the US or eurozone today..
In today's trading the dollar has strengthened over the euro reaching as low as 1.2729, as worries about the health of European banks has promoted risk aversion and lead investors to buy the greenback for it's relative safety. There are no major announcements due out in either the US or eurozone today..
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