The currency blog

German ratification of an enlarged bail-out fund was supposed to calm market nerves going into the weekend, but sentiment remains downbeat in early trading today and we can expect equity markets and risk-on currencies to continue to struggle this afternoon and in the early part of next week. Today is the end of the third quarter and with financial institutions set to report earnings over the next couple of weeks there is usually increased volatility as last minute balance sheet window dressing taking place, so be prepared for greater than usually swings in parings today. Read the rest of this entry »

Until now, Spain’s Tax Office was strictly limited in the manner in which it was able to tackle foreign residents who owed money to the Hacienda. Money owed in Spain had to be reclaimed from Spanish assets, but a recent change in the law means that the country’s tax authorities can now seek recompense from assets held in the debtor’s country of origin, providing it lies within the European Union.

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A sense of optimism looks to be filtering through markets at present. This derives from hopes that the European authorities will be able to ring fence Greece and steer clear of a much deeper and wider contagion to other eurozone peripheral countries than has already taken place. This may involve a European version of the US Troubled Asset Relief Program. A variety of other methods are being considered including covered bond purchases from the ECB, provision of 12 month liquidity by the ECB, a policy rate cut, banking sector recapitalisation and increasing the size of the EFSF bailout fund. Read the rest of this entry »

The huge gains in stock markets around the world yesterday were not mirrored in by corresponding moves in the currency markets, which saw only modest gains for Sterling against the Dollar and Euro. European politics continues to drive sentiment between euphoria and despair as first a Greek deal looked to have been reached, before this morning we find out there is still huge disagreements between member states over details of plan.  The Euro ship is lurching from side to side as traders and investors rush from one side to the other on the back of every new announcement.  On one side German officials have been joined by other creditor nations, Finland and the Netherlands, in calling for the private sector to take on a greater slice of any write down. On the other side sits France, who are desperately trying to keep losses away from their banks, who only just survived a recapitalisation after heavy falls in their share prices in the past few weeks.

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The Forex markets were calm in yesterdays trading day as traders and investors alike attempted to interpret the rumours surrounding a Eurozone bailout package that started over the weekend. Stories have been popping up about a €1.7 trillion fund which would be aimed at saving the Eurozone and allow Greece to default on its £340bn debt pile. This would involve propping up the banks that have invested in Greek bonds so that a controlled bailout can begin on the ailing country. Further plans involve recapitalising Europe with tens of billions of Euros to reassure the markets. UK Chancellor George Osbourne was forced to issue a hastily drafted statement after a British Treasury official outlined behind-the-scenes moves allowing a Greek default. His comments insisted that Greece does have a recovery plan and must carry it out as he rejected claims that the G20 would allow a default.

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The Greenback is gaining all the time given the current environment of increased risk aversion as seen in rise of USD speculative positioning over recent weeks.

One would think there is still ample scope for risk aversion to deepen but what does this mean for the Dollar? The USD index is currently trading just over 78 but during the height of the financial crisis it rose to around 89, a further gain from current levels of around of around 14%.

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