The euro steadied on expectations that the eurozone crisis may be contained as Finance Ministers from member states gather with US Treasury Secretary Timothy Geithner also heading east to offer his assistance. Reports that German Chancellor Angela Merkel, French President Nicolas Sarkozy and Greek Prime Minister George Papandreou will hold a call, also helped European stock markets steady and currencies associated with risk taking recover to a certain extent. Any expectations that market concerns would translate into sterling gains were diminished by comments coming from Bank of England member Adam Posen who strongly recommended more stimulus measures in order to avoid another downturn.
Sterling
Speaking to a select group of business contacts yesterday, Bank of England member Adam Posen strongly recommended that the UK monetary policy committee should commit to further money printing, in order to avoid another recession. Mr Posen even went further by stating other major central banks should also immediately add more stimulus in what appeared to be a call for a large scale co-ordinated effort to encourage global growth. Sterling dipped on the news after already breaching fresh seven-month lows against the US dollar with investors largely overlooking another increase in general price levels.
US dollar
The jury is still out on whether the US Federal Reserve will announce another round of stimulus as early as this month. However, after Fed member Richard Fischer urged more support from fiscal policies, analysts are growing sceptical over the likelihood of Obama’s new plan to increase employment.
Euro
All eyes were on an Italian government debt auction and the prices paid will have little to quell market fears that Italy could be next on the treatment table. In order to attract investment, Italy was forced to pay a record high 5.6 per cent which represents the highest level since the introduction of the euro. Evidence clearly indicates that investors have lost confidence in the government’s ability to manage their huge debt pile and it comes as no surprise that until now, Italy has been forced to rely on the European Central Bank for emergency assistance.
Japanese yen
The yen was dealt a double blow of bad news. Japan’s industrial output figure for the month of July was revised downwards while the Chinese Premiere said nations should get their own houses in order first, before expecting China to provide support. Consequently the yen may continue to attract unwelcome export-harming safe haven demand.
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