Negative figures for the U.S. have fuelled speculation over further monetary easing

In the U.S. retail sales data was weak, declining by a seasonally adjusted 0.2% in May, falling for the second successive month which marked the first back-to-back- decline in two years, while the U.S. Dollar traded lower against its major counterparts yesterday. The negative figures fuelled speculation over a third round of monetary easing by the Federal Reserve as Bernanke promised should the economy deteriorates. 

The Euro remained under pressure amid worries that a bailout of as much as €100 billion for Spain’s banks will add to the country’s debt burden and make it more difficult for Madrid to access credit markets. Official data also showed that industrial production in the Eurozone fell 0.8% in April, adding to the fears over the health of the region’s economy. The Euro however held its ground against the Pound throughout the day, with investors taking risks in volatile condition. Could it be that investors are making room for profit taking?

The yield on Spanish 10-year bonds ticked up to 6.83% early yesterday and this was close to the critical 7% level, which is viewed as unsustainable in the long run after it prompted bailouts in Greece, Ireland and Portugal. Investor’s eyes however remain focused on the outcome of Sunday’s general election in Greece, which could determine if the country remains in the Eurozone. Either way dramatic moves are possible come Monday.

Today the ECB Publishes the Monthly Report for June and figures for Eurozone Consumer Price Index are expected to stay the same so there is potential for this to be a busy day for the Eurozone. In the US there are negative figures for the Consumer Price Index, which may send the markets into risk aversion. This could be a good time to speak with our FX specialists on 02072208181.

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