14 May 2010
In euro trading news the Eurozone took yet another pounding yesterday as rigorous fiscal tightening threatens to dampen an already weak recovery. Eurodollar has crashed to 14 month lows of $1.25 after boosting to nearly $1.31 on Monday after the $1 trillion emergency rescue package was announced.
News from one of the “PIGS”, Portugal is attempting to cut €2 bn from its budget gap. This has done little to reduce the weakness in the Euro and with more tax hikes and salary cuts due, we could see ugly scenes like those witnessed from Greece. ECB President Jean-Claude Trichet has stated the ECB is not “embarking on quantitative easing” and he reiterated that “the Governing Council will not tolerate inflation” leading to speculation a rise in interest rates could be on the horizon.
Sterling has also taken a hit this morning with news that the new coalition has already come to loggerheads. With two political parties with separate agendas leading the country, a schedule for cutting the deficit will take longer to agree and with the credit agencies hovering, a negative outlook over the UK will remain. A cut in the UK’s prized AAA credit rating would have disastrous consequences to the recovery. Data released yesterday showing the UK’s trade deficit widened more than expected, damaged hopes for an export led resurgence.
The dollar has been the main winner from the negative news from Europe as investors run for their “safe haven”. The greenback has also been supported by encouraging figures from the US and expectations that the FED will be the first among the major central banks to raise interest rates. The main focus from today will be the release of April’s retail sales as Obama and Co look for fuel to extend the rally. Also released today is the University of Michigan’s Industrial production consumer sentiment survey.
Report by Report by Tim Lewis
Currency Market Updates by Tom Nadir
The contents of this report are for information purposes only.


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