From a low of 1.32 at the start of October, the Euro hit back and fought its way to 1.42. Sterling did the same coming back from a low of 1.52 to 1.61. It is true that there are some positive signs from the euro zone, investors are gathering a little more support for the Euro on the back of the crisis plan however it does still seem that the risk on risk off appetite will continue to drive the market until firmer plans from European leaders emerge. At present, the 3 main strategies are bringing some confidence to the market. Firstly, Greek bond holders are being forced to write off 50% of the nominal value of the Greek debt. Bad news for bond holders but positive signs for a European recovery. Secondly the Eurozone will need to recapitalize their balance sheets and thirdly the newly formed European Financial Stability Facility (EFSF) will be given 1 Trillion Euros to assist the recovery. However the big question is who will fund this? China has been mentioned, so to has the IMF, however this will bring problems to countries who already have a IMF commitment, namely Britain. The UK economy is having its own issues at the moment, and any further burden will certainly cause problems for the already weak market conditions. Inflation is gathering momentum and the Bank of England are not looking to raise interest rates in the short term. With a depressed housing market, and falling consumer confidence, the outlook, like the weather, looks bleak.
The recovery for both Sterling and the Euro is more to do with Dollar buying on the back of US data. The US Dollar is the only feasible safe haven currency at the moment with the Swiss Franc being pegged against the Euro and the Japanese Yen already overbought, even gold cannot tempt investors at the moment. All eyes will be on the non-farm payrolls on Friday and then on the European leaders over the weekend as they meet to discuss the European crisis plan in more details.
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