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Forex Markets React to Impending Irish Bankruptcy

Irish growth needs to be above 6% just to maintain interest payments on their existing debt. The financial markets are rife with rumors but with nothing substantiated yet the moves are erratic to say the least. The main currencies to benefit are the Dollar, Swiss franc and Yen, all risk adverse entities.

The pound has risen above a 7 week high recently; the momentum has slowed yesterday due to a statement from Mervyn King leaving the door open to further easing measures in the near future. The brakes were also applied with the news that UK banks are carrying a good chunk of Irish toxic debt, shares in RBS have dropped over the past few days and markets are preparing themselves for a perfect storm of spiraling debt and unsustainable lending conditions.

“We could do further quantitative easing if that turned out to be necessary, further asset purchases. We see that as a normal instrument of monetary policy,” King told a parliamentary committee.

King said the Bank’s Monetary Policy Committee was concerned inflation was currently running above target, but reiterated his view that upward price pressures would be temporary which stopped an anemic post inflation rate rally in its tracks.

Data on Tuesday showed inflation rose to 3.2 percent in October, more than a percentage point above the Bank’s 2 percent target.

The European Union hasn’t got a clear exit plan and Austria has already stated that they won’t be lending a helping hand to any failing states. It is only a matter of time before the markets react and invoke a Euro fire sale as traders dump their holdings and flee to safety.

Any clients holding Euros should consider exiting their positions in favor of other European currencies like the Swiss franc, Norwegian Kroner or even the Pound.

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