Good morning. Yesterday’s rumour of the EFSF (European Financial Stability Facility) getting a bigger pot of up to €2 trillion from the present €440 billion helped arrest the single currency’s slide, though there was no official announcement on the matter. Meanwhile, both the German and Spanish Finance Ministers opposed a bigger EFSF with German FM Wolfgang Schauble evening calling the idea “silly” and warned such an idea may result Germany losing its AAA rating. “Germany has no plans for European Financial Stability Fund expansion beyond the July 21 deal,” said Mr. Schauble. Well, there seems to be a clear lack of consensus which may make life difficult for Greece in working towards a conclusion of the saga.
Fortunately though, the Greek parliament passed the enhanced property-tax proposal. The opposition’s closing ranks with the ruling coalition is a good sign, though it looks more out of compulsion than anything else. A proposal for Tobin Tax (aka ‘Robin Hood Tax’) in the EU region on financial transactions has been formally adopted by the European Commission today. Britain however, opposed the proposal saying it would support a tax that applies globally rather than only to the EU region. “The Government will continue to engage with its international partners on Financial Transaction Taxes and has no objection to them in principle. But any financial transaction tax would have to apply globally and there are a number of practical issues that need to be worked through,” a British treasury spokesman said.
CURRENCY RATE OVERVIEW
GBP/EURO – 1.1506
GBP/US$ – 1.5634
GBP/CHF – 1.4059
GBP/CAN$ – 1.6003
GBP/AUS$ – 1.5822
GBP/ZAR – 12.2840
GBP/JPY – 119.71
GBP/HKD – 12.1941
GBP/NZD – 1.9901
GBP/SEK – 10.5712
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EURO: The EURO/USD pair strengthened yesterday on hopes of a better coordinated approach by EU to deal with the debt crisis. European Central Bank President Trichet said the region needed “effective action, implementation, verbal discipline and a stronger team spirit on the part of European executive branches.” Unfortunately, not all members of the 17 member union seem to be singing from the same songsheet. The pair had hit a high of 1.3660 yesterday after starting at 1.3480. The GBP/EURO pair remained steady yesterday around the 1.1500 mark. The IMF, ECB and the European Council meet in Athens today to review Greece’s debt reduction progress.
USD: The Sterling gained ground against the greenback yesterday on hopes of the EU reaching a consensus over how to deal with Greek debt getting brighter. However, there has been no official confirmation on the future course of action. The GBP/USD pair opened below the 1.5550 level yesterday but hit 1.5702 by late afternoon. Meanwhile, BoE’s MPC member Ben Broadbent’s admission that he was close to voting in favour of another round of QE doesn’t bode well for the Cable.
Elsewhere, news of Switzerland’s consumer demand dropping to its lowest in two years drove the Swiss Franc down. The AUD/USD and NZD/USD pairs also remained volatile yesterday. The GBP/AUD and GBP/NZD pairs also showed volatility and traded around 1.5775 and 1.9850 respectively.
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