Currency Market Update 20/07/10

The pending release of the E.U. banking stress tests and speculation over the performance of major E.U. banks has kept the single currency’s rally strong despite various negative market factors yesterday. Hungary, while not yet using the Euro, failed to agree a fiscal strategy with the IMF and E.U. but more significant was the downgrade of Ireland’s debt rating.  Moody’s downgraded Ireland’s debt rating to Aa2 from Aa1 citing concerns over the country’s debt-to-GDP ratio and the prospects of a future rise in the country’s debt position. Ireland is expected to have a bond auction today and markets are still expecting a good performance on the auction.
The wider markets largely ignored the rating downgrade preferring to focus on the release of stress tests and corporate earnings results. Investor confidence remained high as concerns over sovereign debt and the risks to the E.U. banking sector have lessened. Corporate earnings have been largely positive and expectations are for none of the major E.U. banks to fail the stress tests.
Assurance for markets comes from the action taken by various governments to cut their debt and the ongoing support from the ECB to maintain liquidity levels in the market and support the banking sector.
German PPI figures released this morning came out higher than expected and has given the Euro brief support but with focus remaining on stress tests and the release of British government’s spending figures markets remain cautious. Other data out today will be U.S. housing starts and the Bank of Canada’s interest rate decision.

Live IB rates at 10.30 am UK
GBP – EURO 1.174
GBP - USD 1.522
GBP- AUD 1.731
EURO - USD 1.295
 

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