by Adam Solomon
The Pound fell against the Euro by the most in two weeks last night, as European officials agreed to expand a rescue fund for indebted nations, which reduced demand for the UK currency as a perceived safe haven from the sovereign debt crisis. The Pound weakened against all but two of the 16 most actively traded currencies, before a report this morning is expected to show that an index of retail sales fell this month.
EU leaders have persuaded bondholders to take 50% losses on Greek debt and boosted the rescue fund to an incredible €1 trillion. Officials have responded to global pressure to step up measures to fight the debt crisis, amid concerns that Greece will default and the threat of contagion to other high deficit nations like Italy and Spain.
Even though the key details of the rescue package are murky at best, the announcement last night will restore near-term confidence in the market and the Euro has rallied across the board as a result. Last ditch talks with bank representatives led to the debt-relief accord, in an effort to quarantine Greece and prevent speculation against Italy and France from weakening the Euro-zone economy and impacting on global growth.
The German Chancellor Angela Merkel told reporters that “the world’s attention was on these talks. We Europeans showed tonight that we reached the right conclusions.” Measures include recapitalization of European banks, a potentially bigger role for the International Monetary Fund, a commitment from Italy to do more to reduce its debt and a signal from leaders that the ECB will continue bond purchases in the secondary market.
The Euro advanced 0.7% against the Pound and the Dollar following the announcement, while stocks gained worldwide, reducing the allure of the Dollar and the Yen as a haven and strengthening the high-yielding currencies like the Australian Dollar and South African Rand. The Stoxx Europe 600 Index rose 2.5% and Stardard & Poor’s 500 Index futures increased 1.6%.
The increase in risk appetite saw the Pound rallied towards a seven week high against the Dollar last night at 1.60. The UK currency may come under pressure this morning, as a report from the Confederation of British Industry is expected to show that retail sales dropped to minus 16 in October, indicating that the pace of consumer spending is slowing, which will impact on the economic recovery.
EU 09:00 – M3 / 3 Month Moving Average (September)
EU 10:00 – Business Climate (October)
EU 10:00 – Economic Sentiment (October) – Industrial / Services / Consumer
U.K 11:00 – Distributive Trades Survey (October)
U.S 13:30 – Advance GDP (Q3)
U.S 13:30 – Initial Jobless Claims (w/e 22nd October)
U.S 15:00 – Pending Home Sales (September)
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