PIGS Going To The Chop

Currencies Direct May 28th 2010 - 2 minute read

PIGS Going To The Chop

This morning brought a surge of Euro strength to the markets as traders and investors alike bought into the single currency. With Italy following Spain, Portugal and Greece with a statement on its austerity measures, the Eurozone PIGS finally understand the severity of the problem. Unfortunately, it could be too late for Greece with reports in the FT claiming that “public debt to gross domestic product forecast to hit 150%”, which makes it hard to believe the country will correct its problems before the aid runs out. This story clearly has a long way to run.

Sterling continues to trade above 1.17 versus the Euro, after hitting an eleven month high yesterday. The UK currency was buoyed by talk of a take-over bid by Prudential for AIG’s Asian business, with the speculation also lifting sterling versus the dollar. However, further momentum for sterling is limited after news that UK consumer confidence fell for the third consecutive month in May, reflecting uncertainty ahead of the election result and the prospect of fiscal tightening once a new government was in power.

According to figures released yesterday afternoon, the US economy grew in the first quarter at a slower pace than previously calculated, reflecting smaller gains in consumer and business spending and highlighting the risks to the recovery posed by the European debt crisis. The 3 percent increase in the annual rate of GDP was less than forecast and compares with the advanced estimate of 3.2 percent issued last month. Out later today, Friday sees the release of a whole raft of US data including April personal income, personal consumption, the core personal consumption price index, the May Chicago PMI and the revised May University of Michigan consumer sentiment index.

The Australian dollar headed for its first five day advance in more than a month as Asian equities extended a global rally, boosting demand for higher yielding assets. After previously dropping 7.4 percent so far in May, the Australian Dollar surged this week after China’s foreign exchange regulator affirmed its commitment to investing in Europe, triggering rallies in stocks and commodities.

Report by Tim Lewis

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