Have the Europeans done enough to get to Christmas? FX market Dec 12By james tweed • Dec 12th, 2011 • Category: Currency
Thank you for downloading this foreign exchange market report podcast from Coracle Online and Crossbar fx. This podcast is for December 12th.
Amongst all the heated speculation over the weekend about the outcomes of the European summit’s impact on Europe’s economic future and Britain’s role in it, there is a more immediate question being asked by traders: “Has it done enough to get us through to Christmas?” Many suspect not…. Liquidity is the prime issue. Are there enough funds available now to keep Europe’s bond and money markets working? The sovereign debt crisis is closely linked to the European banking crisis as government bonds make up a lot of bank capital. For markets to calm down, what is needed is confidence that there will be no defaults, or haircuts. Only the ECB can print money, and they look to support banks, but not governments. Many expect the ratings agencies to downgrade some Euro area member states in the next few days and the risk remains that a peripheral state’s debt will be attacked before Christmas. To give you some idea of the scale – institutional investors own about Euro 100 trillion worth of assets, compared with Euro 10 trillion owned by Central Banks. Keeping them calm is paramount. The ECB cut rates last week to 1% and in the accompanying statement the new president of the ECB – Mario Draghi, reminded everyone that the ECB was not going to be the lender of last resort to Sovereign states.
There was little news from the US last week; all eyes were on the Euro and the markets’ interpretation of the latest deal, but as traders looked to take risk off the table, the US Dollar was once again the recipient of safe haven buying.
Here in the UK the Prime Minister vetoed the EU treaty, and in doing so found himself the only one out of 27 members to do so. The UK will not be a part of the new Eurozone treaty – the Prime Minister refused to sign up to it because it did not contain a series of safeguards for the City of London. Only time will tell if this was a good idea. Meanwhile Sterling strengthens against the Euro.
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