The inability of EU leaders to come up with a second bailout plan for Greece is only compounding contagion fears that have arisen recently in Italy. Equity markets across Europe are expected to see a very weak open with Asian equity markets all trading lower. UK data might allow sterling the opportunity to break away from euro/dollar developments, if only temporarily, when CPI and trade figures are released. Sterling fell to five-month lows against the dollar, but is near three-week highs against a falling euro. The Swiss franc has exploded to record highs against the euro as safe haven inflows pick up.

Sterling

The BRC retail sales came in at -0.6 per cent in June, while the RICS House price survey improved slightly over the prior month’s release. The data is not likely to have an impact on sterling trade, which is being strongly influenced by events coming out of the EU. A weakening of exports and steady inflation figures will likely prove too little to support sterling against the US dollar, while activity against the euro remains based on euro weakness and less to do with sterling strength. Sterling is approaching three-week highs against the euro, while falling to five-month lows against the US dollar.

US dollar

Risk is off. Financial markets around the globe are reflecting this attitude. Equities are being sold off, while US bond yields are sinking. The dollar is rising, alongside the Swiss franc and Japanese yen, which are traditionally seen as safe haven currencies. Currencies that are deemed “riskier” are falling like stars out of the heavens. The reasons for the shift are multifaceted, but mainly have to do with lack of confidence in the EU’s ability to get its debt crisis under control, while at the same time fears of a global slowdown are being fanned by data coming out of China.

Euro

The euro fell under heavy selling pressure after talk that the EU could allow Greece to default on some of its debt. The primary problem with the idea is that it would destroy the credibility of the EU, who for months now has been saying there would be no default. Furthermore, a default was not a function in the banking stress tests that are due out on the 15. It would limit their credibility as well and drag countries like Spain and Italy closer to the drain.

Japanese yen

The Bank of Japan’s MPC decided to leave its policy unchanged. At the same time, the central bank revised higher its outlook for the economy.

Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/

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