financial VOICE
Asian Voice - Saturday 16th June 2012
21
Foreign Exchange Paresh Davdra is the Dealing Director of RationalFX, Currency Specialists.
EU needs to unite, fiscally and politically The US dollar ended its two week rally as central banks dismissed another round of quantitative easing. Federal Reserve Chief Ben Bernanke spoke strongly about the level of debt the US government is currently holding. Bernanke encouraged the government to start implementing austerity cuts in order to avoid another downgrade by rating agencies this year. The US debt is currently at $15.4 trillion, the biggest bond market in the world. Bernanke also said that further QE in the near future would be bad for inflation however it will be looked upon should the European crisis continue to deteriorate. The FOMC also kept interest rate at record low, 0-0.25% as unemployment is still high and consumer spending is subdued. On this side of the pond the Bank of England mirrored the Federal Reserve. The MPC voted to keep interest rates on hold at 0.5% and the asset purchase was also capped at ÂŁ325 billion. Even though we saw the UK GDP fall more than expected, 0.3% fall as oppose to 0.2% the BoE feels that the economy will recover in the second quarter of the 2012.
We have seen the rate of inflation far above the central bank’s target rate for 30 months in a row and the risk of inflation remains if more money is injected in the economy. Christine Lagarde, head of the International Monetary Fund tried to encourage the BoE to keep an open mind about reducing interest rates further in the event of further decline in GDP. King does however feel that the inflation could be affected substantially if energy prices rise again. The Euro was off to a great start up almost 1% against the US Dollar following news that Spanish banking sector will be given a capital injection of up to ₏100billion (£80.8billion) to solve and recapitalize its banking system. This is only seen as a short-term fix for the Euro-zone and like Greece’s situation, how long can this continue to happen‌‌? The rescue funds for the banks should speed up the "flow
of credit loans to families, small and medium enterprises and to self-employed workers". However there is a warning that the near future looks bleak: "This year is going to be a bad
very little way for Spain to pay back the debt – it is likely that they will require more in the not so distant future! Another black hole similar to Greece?! The temporary relief may be short lived though, as all eyes are still on Greece’s election on June 17 that could put Athens on a path out of the bloc and precipitate a deeper crisis over the future of the euro. The E u r o g r o u p Working Group released a contingency plan for the first time during the crisis making Federal Reserve Chief Ben Bernanke the breakup of the one." The economy, which is in Eurozone a real possibility. ATM its second recession in three machines will dispense limited years, was still expected to amount of Euros, flows of capishrink by 1.7%. The bailout has tal pan European will be conincreased the Spanish governstrained and travel inter contiment debt by 10%, hence the nent may require a visa. The sitlack of confidence in the country uation is now at a critical point. and the plan. The EU needs to unite, fiscally Markets also feel that this is and politically or accept the not really a solution and with inevitable.
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Weekly Currencies As of Tuesday 12th June 2012 @ 2.30pm GBP - INR = 86.68 USD - INR = 55.80 EUR - INR = 69.70 GBP - USD = 1.55 GBP - EUR = 1.24 EUR - USD = 1.259 GBP - AED = 5.70 GBP - CAD = 1.60 GBP - NZD = 2.00 GBP - AUD = 1.56 GBP - ZAR = 13.07 GBP - HUF = 368.81
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