Draghi placed onus on EU political leaders to resolve crisis decisively and quickley

Tom Tong07/Ιούν/2012Currency Updates


Sterling rose against the broadly pressured dollar on Wednesday as speculation about US monetary easing increases. Sterling pulled off a five month low to climb 0.6% against the greenback. The main news out of the UK was the Construction PMI. Construction growth slowed in May with confidence draining from firms operating in the sector. It fell to a three month low of 54.4 down from 55.8 in April. A major driver of the slowdown was a marked fall in new business growth, which dropped to its lowest pace in four months.


The Euro made headway against the dollar on Wednesday, in volatile trading and European Stocks rose strongly with the Euro Stoxx 50 up 2.42%. The main news revolved around Mario Draghi speech yesterday as he again refused to cut interest rates and asked for Europe’s political leaders to act now to restore confidence and stop their ravaged economies from collapsing any further. He stressed that the problems in the Eurozone could not be solved by monetary policy and that necessary action must be taken by politicians to clean up troubled banks and restore competitiveness to failing economies. Markets had high hopes for more support from the ECB but rose despite the disappointment thanks to hints of further QE. Draghi also explained during his speech that the ECB will continue to supply banks with unlimited liquidity until at least January of next year but questioned the benefit of another three-year long-term refinancing operation. Draghi s speech now places the onus firmly on the court of political leaders who are holding a summit later this month to try and end the crisis decisively.

In other news German and EU officials are urgently exploring ways to rescue Spain’s debt stricken banks although Madrid has not yet requested assistance. We also saw Moody’s downgrade seven German banks yesterday including the countries second biggest lender Commerzbank.


Markets will be keen to what Ben Bernanke has to say today when he testifies to congress on the economy today. Meanwhile the latest Beige Book showed the US economy grew at a ‘moderate pace’ during April and May. This was slightly better than previous reports however concern about the stability of the US recovery remains. In the markets the Dow closed up 2.37% in the second day of gains – and the S&P 500 enjoyed its best day of the year. An interview with Warren Buffet revealed that he remains bullish over the American Economy and believes the risk of a double dip recession in the US is ‘very low unless events in Europe develop in some way that can spill over here.’


Written by Tom Tong

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