Euro finds relief in speculation from the Fed and Bank of China to stimulate the economy while final decisions to see if eurozone remains as a single block will have to wait until middle of September

Tom Tong24/Aug/2012Currency Updates


The markets opened with the dollar falling versus the euro and its major peers as the Federal Reserve and the Bank of China increased speculation that they will seek to stimulate economic growth. U.S. stocks dropped on concern that European leaders were not making progress in solving the region’s debt crisis.

In the afternoon, the jobless claims index, which rose to a one-month high, sent the dollar down reaching the weakest level in seven weeks. Even after a separate report showed purchases of new U.S. homes climbing 3.6 per cent, the dollar could not make it to recover the losses of the day.


The euro climbed to its strongest level against the dollar as speculation increased that the U.S. and China will ease monetary policy. Spain is negotiating with the eurozone over conditions for international aid.

The plan is aimed at bringing down Spain’s borrowing costs. At this stage, the existing European rescue fund, the EFSF, would purchase Spanish government bonds at primary auctions while the European Central Bank would intervene in the secondary market to lower yields.

On the other hand, German Chancellor Angela Merkel and French President Francois Hollande met to discuss whether Greece should have more time to make spending cuts. They will also meet Greek Prime Minister Antonis Samaras today.

Samaras wants more time for Greece to complete reforms that are a condition of continuing to receive bailout loans.

The “troika” – the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission – are due in Athens next month and Greece’s continued access to the bailout packages depends on a favourable report from the trio.


Sterling traded near a three-month high against the dollar, after the U.S. Federal Reserve indicated (as mentioned above) it could opt for more monetary stimulus. By contrast, the Bank of England is still expected to keep monetary policy largely unchanged at their next meeting.

After the money laundering scandal, HSBC saw its credit rating cut to negative from stable by Standard and Poor, as they find the British bank to have become too big to be managed effectively. An index of U.K. retail sales dropped to its lowest level in four months in August, and the confidence about the outlook for the next quarter weakened.

The Housing minister, the local Government association, and other official bodies are trying to develop new plans to boost the construction sector and reduce unemployment. The next focus for sterling investors will be the second reading of UK second quarter GDP today.


Written by Tom Tong

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