The pound is mixed this morning, remaining firm against the broadly weaker euro, but consolidating slightly against the dollar as Asian stocks declined on increased risk aversion in the markets. The MSCI World index dropped during the overnight trade as uncertainties over the European debt pushed investors into the safety of the US dollar. Sterling sentiment was dented after Bank of England released its Quarterly Bulletin stating that 200-bilion pounds asset purchase program was very effective, indicating that they are considering using this option again in the future. In addition, business secretary Vince Cable warned that UK economy could face second wave of financial crisis or face a lot of years of stagnation in the future if the European Debt problems continue to burden already fragile economic growth. Expect for the pound to remain driven by market risk aversion as there are no data release or policy speeches scheduled for today.
The euro dropped across the board during the overnight trade after S&P rating agency downgraded Italian sovereign rating. The single currency continued with its downtrend after S&P cut Italy’s rating by one notch to A from A+, citing weaker economic growth outlook. The rating company also stated that Italian net general government debt is the highest among it’s A rated countries, and is expected to reach levels higher than previously expected. Separately, Greek PM George Papandreou will hold another call with EU and IMF tonight in a bid to secure a sixth installment of rescue funds in order for the government to meet its deficit goals. Looking ahead to today, German ZEW Survey of investor sentiment headline the economic calendar, with the expectations for the figures to deteriorate further in September. Expect for the single currency to remain under pressure as Greek default is on sight and as Italy debt troubles start to worry investors.
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