There are strong rumours this morning that the IMF
(International Monetary Fund) will be expanding its lending resources in order
to strengthen the global economy and offer it some protection from the on-going
problems in Europe. There is talk that the increase will be as much as $600
billion and will take the ‘war chest’ closer to the 1 trillion mark that IMF
head Christine Lagarde initially stated was required to ease global tension.
The aim is to have countries like China and Russia on board by the next G20 summit
in Mexico on February 20th.
We have seen some Euro strength off the back of this and
also due to the UK’s unemployment rate rising to a 17 year high yesterday. This
is the highest level since 1994 and does not bode well for the British economy.
I do believe we will see the GBP/EUR rate settle under the 1.20 mark for a
sustained period and give some welcome relief to the single currency. I don’t
believe we will see a swing down to the 1.15 region quite yet, as there are
still a number of on-going issues in Europe, although any move towards a third
round of Quantitative Easing could see these levels breached.
There are still contrasting reports being released about
Greece and this is something to keep an eye on. On one side you have a Greek
finance ministry official trying to reassure the markets by stating that Greece
would come to an agreement with private creditors to write off up to 50% of
their debt. On the other side you can look at the Greek bond market performance
and with yields on the rise its suggests the market is not expecting Private
sector involvement deal anytime soon. This just proves that Europe has a
long rocky road to recovery but at this point the continuing economic problems
in the UK are starting to outweigh those in Europe and I do believe this will
be reflected in the currency markets.
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