Sterling breaches 1.6000 versus the US Dollar as Wall Street opens down by around 40 points in early trading. The Pound is benefitting from a hawkish Bank of England minutes meeting earlier this month and some stronger than expected UK Unemployment figures. The US appears to be suffering a knock-on effect from Spanish and Italian fiscal profligacy.
The Italian government announced this afternoon that it has discarded its economic growth and deficit reduction targets and set itself some more reachable aims. Italy now expects to suffer a -1.2% fall in GDP in 2012, and post a deficit of -0.5% GDP next year. The new figures come as downward revisions from the initial -0.4% estimate for 2012 and -0.1% deficit next year. The move was met with negativity from investors who proceeded to sell shares in the FTSE MIB and Unicredit by the shed load. The FTSE MIB fell by 2.6% and Unicredit was down by 5% before shares had to be halted.
Spain’s most negative news story today comes as a result of Bundesbank head Jens Weidmann telling the sovereign nation not to rely on European Central Bank funding to help it out in times of need (times like now considering the country has an 18-year high bank book of ‘bad loans’). Weidmann’s comments sent the Spanish stock market down 3.1% and contributed the Euro devaluing by around half a cent against the Dollar.
The situation in the Eurozone is of great concern to the global economy and US Treasury Secretary Timothy Geithner has urged European leaders to respond strongly and positively to the deepening financial crisis.
“The IMF is in a very good position to demonstrate to the world that it has the ability to raise additional finance from other countries very, very quickly if it needs to do that. What we did not want to see is people looking to the IMF as a way to substitute for a more forceful European response.”
It will be interesting to see how long Sterling can sustain this strength for against the US Dollar, but ultimately with QE seemingly off the cards for the foreseeable future as the BoE attempt to reduce high inflation levels down to 2.0%, investor confidence could favour the Pound over the fed-heavy buck.
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