Europe Coming Around To Austerity

Currencies Direct May 27th 2010 - < 1 minute read

Spain’s parliament are to vote on government’s plans to cut  EUR15 bln off the budget deficit today.  Expectations are that the government will see it’s proposals approved, but voting is expected to be tight.  Basque Nationalists said yesterday they will side with main opposition in opposing the cuts. Further along the med and Italy have planned to make EUR24.9 of budget cuts over the next two years are viewed by the Italian PM Berlusconi as “absolutely necessary” in order to support the Euro and protect Italy.

These attempts from Europe are efforts to convince investors that the region can handle budget deficits and strengthen the Euro. The news has pushed the EURUSD higher from 1.2190 over night to 1.2287 at the time of writing. It has been a different story against the pound which has strengthened against the Euro from 1.1748 over night to 1.1858 at present.

In the UK this morning news that Prudential/AIA deal may be “off” has pushed Cable firmer from 1.4376 over night to currently 1.4575. GBP/USD gaining decent support from this development and the rumour that the deal might not go through has led to speculation that cable hedges (thought to be of significant size) might have to be taken off, which has lead to sizeable buying on the pair. The pair remains strong despite negative UK CBI retail balance data that is down from +13 in April- the lowest reading since March 2009.

In terms of the rest of the day we US GDP data out at 13.30 BST so any huge fluctuation from the 3.5% annual or 0.9% ¼ figure expect some movement on the green back.

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