UK
The markets apparently ignored the credit downgrade of major UK banks by Moody’s on Friday triggering industry discussions over the true value of such ratings.During Friday’s session GBPEUR stayed above 1.24 for the most of the day, reaching a high of 1.2461 in early trading falling sharply in the afternoon to a low of 1.2398. Sterling has recovered around half a cent over the weekend to open today around 1.2450. Technically, analysts are looking for a close above 1.2468 for signs of a significant recovery for sterling.
GBPUSD hit a one week low of 1.5556 from a high of 1.5634. After a short rally to a high of 1.5596, cable has settled back to the same level as it closed the European markets on Friday, 1.5562.
Bank of England MPC member David Miles said late Sunday that at least another £50bn of QE is needed in order to kick-start an economic recovery.
David Cameron is due to speak today on reforms to the current benefit system in an attempt to aid getting the younger generation back to work.
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WORLDWIDE
During Friday’s European session, EURUSD stayed stable around the 1.2550 level, until US markets opened and the pair then posted a high of 1.2583 which was quickly corrected. The weekend saw a continued rally downward and we have opened markets this morning just under 1.25, with support at 1.2519 and 1.2490 already broken we could see support around 1.2453 tested now.
Speaking on operation Twist, Fed Reserve Bank of Richmond President Jeffrey Lacker warned on Friday that fresh support from the Fed won’t significantly boost the economy without creating the risk of higher inflation.
Also on Friday, Canada saw disappointing data releases with all CPI readings recording a fall, the worst being the YoY figure for May which came in at 1.2% against the previous 2.0% and the anticipated 1.5%.
Germany had similarly negative results for their IFO readings on business environment with only the current assessment for June showing improvement. An IFO economist also described an expectation the German economy will soon take a hit from the Eurozone debt crisis.
The big event of the session was the ECOFIN meeting where the German, French, Italian and Spanish leaders agreed on a €130bn package to revive economic growth in the Eurozone. At the same meeting, finance ministers killed off the idea of an EU financial transaction tax but left open the possibility that a smaller group of countries could forge ahead with it.
An audit released on Thursday found Spanish banks would need up to €62bn in extra capital to weather adverse circumstances, but an application has not yet been submitted.Spain is braced for a downgrade from ratings firm DBRS by the end of August, which is expected to add stress to the country and its banks. DBRS is the only one of four rating agencies the ECB uses to judge collateral quality that still has Spain in A-rated territory.
Currencies from Brazil, Russia and India will probably decline at least 15% by year-end, said Stephen Jen, the former head of global currency research at Morgan Stanley.
India plans to unveil measures today to support the rupee as its slump to a record low against the dollar threatens to intensify price pressures and boost the cost to companies of repaying foreign debt. The rupee strengthened across the board, GBPINR fell from 89.031 to 87.91 after the news.
