Key developments from the euro zone allowed stock markets to advance while traders cautiously took on more riskier positions. The euro produced a mild turnaround against the US dollar following a statement which came after a call between officials from Germany, France and Greece. Italy, also under significant pressure finally passed an emergency austerity plan which may just keep rating agencies at bay for now. The pound also fell against the euro after a worrying assessment of UK employment which revealed that 69,000 jobs were lost in the three month period to July.
Sterling
Sterling fell to fresh 19-month lows against the yen whilst hovering within reach of January 2011 troughs versus the US dollar. Although the moves are arguably overdone given the extremely cautious environment currently, UK fundamentals on the whole do warrant a weaker pound. The rate of the number of individuals claiming unemployment benefits has accelerated over the summer months.
US Dollar
US retail sales failed to increase over the month to August with analysts already anticipating a slowdown from July’s 0.5 to a more reserved 0.2 per cent. The drop off in consumer spending will fuel more talk of the US economy heading for a hard fall and need for more stimulus from the Federal Reserve. Consequently, the US dollar surrendered a small fraction of recent gains against a backdrop of improving sentiment which saw stock market activity improve.
Euro
The current sovereign debt crisis plaguing the single currency is showing little signs of abating however European shares and the euro bounced back following the announcement from José Manuel Barroso, that the European Commission was close to presenting plans for the introduction of euro area bonds. Although there is a long way to go on the controversial issue, markets traded on the news with no further information on Greece received. The prospects of collectively sharing risk would attract investors and give weaker member nations access to cheaper funding. Still, it is widely known that Germany would appose such measures after its Chancellor Angela Merkel, speaking last month, claimed the idea is not the solution.
Japanese Yen
The Swiss National Bank policy meeting could be critical in shaping trading activity, even more so for the yen. Japanese Prime Minister Yoshihiko Noda stepped up his already strong rhetoric, warning markets that Japan will continue to act against “one-sided” yen gains if they feel the situation will impact the country’s growth. The yen is trading dangerously near what traders see as intervention territory influenced mainly by investors seeking refuge from European woes.
Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/