Germany Agrees To Support Spain

Currencies Direct July 20th 2012 - 2 minute read

In Germany yesterday with the lower house of
parliament agreed to contribute to the estimated €100 billion pot to bail out
ailing Spanish banks which are suffering from their domestic property crisis.
This was seen as a make or break decision for the bailout which is expected to
be pushed through European parliament later today. However the Germans have
delayed their decision on whether the ESM will be able to recapitalise banks
directly.

Yesterday we saw a choppy day for GBP/EUR
with the pair pushing through the 1.28 barrier for the first time since
November 2008 as the Spanish bank crisis dampens investor appetite for the
Euro. This led a run on Spanish bond yields as investors wanted greater
payments to buy the ailing countries debt, which pushed them over the
‘critical’ 7% level again this month. This is in contrast to Italy where credit
ratings agency Fitch announced yesterday that it is keeping Italy’s rating
at  –A which shows an increasingly
different story to the two notch downgrade by Moody’s and one notch move by S&P.

The IMF noted that the UK should rethink its
austerity first approach as it is dragging down UK growth which was cut by the
fund from .8% this year to .2% with retail figures this week coming in weaker than
expected affected by the wet weather. However, it appears the UK is trying to
move away from the EU being its primary trading partner with over 50% of
exports going to countries outside of the EU with a focus on emerging economies
such as Latin America.

GBP/USD has been rallying this week
apparently off of the expectation that fresh new stimulus measures will be
introduced out of America after Fed chairman Ben Bernanke did not rule out a
third round of QE if the situation called for it. GBP/EUR has been racing this
week pushing to highs from November 2008 and going over the 1.28. EUR/USD has
been dictating trade this week with large movements being attributed to the
inter-day trading.

We have a slow data day again today with news
of interest being Canadian Inflation numbers out this afternoon but investors
will be looking towards next week’s GDP numbers out of the UK and USA and
durable goods orders from America also. 

 

Report by Ashley Skinner

Written by
Currencies Direct

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