After the Euro summit

Posted by on Jul 5, 2012 in Commentary, Featured, Market News

After the Euro summit

After the Euro Summit

How quickly news drops out of the headlines. It was only a week ago that Eurozone leaders met for another in the series of Euro summits to save the Euro. Expectations were low, lower than a snakes belly in fact. Then something miraculous happened, an announcement of progress towards banking union.

The markets immediately pushed the value of the Euro higher. Banking union is one of the pillars required to support a currency. One currency, one central bank standing behind it, with the central bank in turn monitoring and regulating the activities of the individual banks in it’s currency area. The outcome will normalise the currency, making it the currency of the “United States of Europe”.

The markets have been very muted since the initial response, with the Euro drifting back towards 1.25 against the US Dollar. Yet interest rates in the “troubled” economies of the Euro area dipped. These seem to be contradictory messages and perhaps give an indication of the difficulties ahead.

Today, both the ECB and the Bank of England meet to set out their respective responses to the weak economic backdrop. The ECB is expected to drop interest rates to a new all time low of 0.75%. The Bank of England is expected to create another GBP 50 billion of money for the economy.

It would not be a massive surprise to me if either of these expectations were exceeded. Tomorrow is Non Farm Payroll in the USA. Once these figures are out of the way, we can get on with trading again. A more detailed examination of the Euro proposals has to follow in line with progress.