Currency News In Euro Zone

CURRENCY NEWS IN EURO ZONE

In the Euro-Zone, reports have confirmed that business confidence in Belgium fell by more than economists had previously forecasted.

The confidence Index for Belgium (The sixth-largest economy in the Euro-Zone) declined to a 6-month low, pulled down by growing pessimism in the manufacturing industry. Business sentiment also declined in France, adding to signs that the recovery is slowing across Europe.

US MARKET

Economic data released from the U.S yesterday afternoon confirmed that purchases of new homes fell in May to the lowest level on record after a tax credit expired – confirming that the market remains dependent on government support.

The Fed’s statement noted the continuing difficulties in the housing market as well as the constraints on household spending. The statement also suggested that the sovereign debt crisis in Europe has created financial conditions that are “less supportive of economic growth”.

The dollar came under pressure overnight after the Federal Reserve announced a more cautious assessment of the U.S economy than in its previous statement. Interest rates in the U.S are expected to remain on hold for an ‘extended period’.

The Statement confirmed that recovery is continuing and noted that the labour market is improving gradually. However, underlying inflation has trended lower and “is likely to be subdued for sometime”.

UK MARKET

The Pound made gains against the Euro during trading yesterday, rising back above the pivotal 1.2000 level. Sterling also rose impressively versus the U.S Dollar – rising towards the key 1.5000 resistance level during the afternoon and holding above $1.4800 by the close of trading last night.

The pound recovered some of the losses made during the last few days after the threat of the U.K losing its AAA credit rating receded following the emergency budget.

Minutes of the latest Bank of England policy meeting were released yesterday morning. The minutes confirmed that policy makers voted 7-1 to keep interest rates on hold for the 15th month in a row - One member of the Monetary Policy Committee, Andrew Sentence voted for an interest rate rise.

This was the first call for a U.K rate rise by an MPC member since August 2008, and has surprised economists, who expected another unanimous decision.

The Bank of England also decided not to inject any more money into the U.K economy under its policy of quantitative easing (QE).

Inflation hit a 17-month high of 3.7% in April, and even though it fell back to 3.4% during the month of May, the figure remains well above the Bank’s 2% target.

Mr Sentance argued that the persistence of inflation had cast doubt on the Bank’s prediction that spare capacity in the slow economy would be enough to bring inflation down. However, the other committee members felt that this argument was not enough to justify a change in policy.

Chancellor of the Exchequer, George Osborne has said that lenders need to share the pain of tax increases after he announced a levy on lenders’ balance sheets.

Osborne’s levy is designed to curb banks’ reliance on the short-term funding that helped trigger the biggest financial crisis since the Great Depression. France and Germany are also considering similar taxes as they try to tackle budget deficits swelled by bank bailouts and stimulus measures. France are scheduled to present a plan in its budget, and the German government are expected to publish legislation this summer,

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