F/X Weekly comment

Well, 1.1500 or higher I called for last week, and as I write this late on Friday afternoon here we are at 1.1540. And what a week it's been. Worries about Eurozone debt were boosted by worries about the US debt mountain that I spoke of last week. Together they make a formidable problem, and the world's stock markets have taken this all to heart and gone on a slide.

PIIGS
It's looking more and more likely that there may be two 'I's in PIGS, with Italy coming under the spotlight this week. So much so that Mr Berlusconi had to stand up in parliament and make strong noises in its defence. That ,as we know, is enough to spook any market, and sure enough the Euro suffered as a result. Then European Commission President Jose Manuel Barroso joined in the fun by warning that the Eurozone's sovereign debt crisis was spreading, reinforcing fears that Italy and Spain might become embroiled in the problems. His comments spooked the markets even more, and both the stock markets and the Euro finished lower.
So far Ireland, Greece and Portugal have been bailed out, Greece twice. The European Commission is quite rightly worried that it will not be able to afford to do the same for Spain and Italy, the zone's third and fourth largest economies. The ECB has announced that it will offer a fresh tranche of loans to banks to counter continuing fears about the eurozone debt crisis. Jean-Claude Trichet stated that economic uncertainty was 'particularly high'. Quite an understatement really!

UK
Unusually, sterling declined the opportunity to shoot itself in the foot and help the Euro out of its problems. In fact we actually came out with some better than expected Services PMI data.

IS
Which of course stands for Italy and Spain, a subset of PIIGS. For a flavour of what might be to come, today's economic data from both counties is interesting. Italian GDP rose 0.3% between April and June, up on 0.1% growth in the first quarter, according to data supplied by the Italian National Statistics Institute. The Spanish central bank predicted GDP growth of 0.2% during the same period, after growth of 0.3% last quarter. The bank called for decisive action by Eurozone leaders, and also for domestic action to introduce structural reforms aimed at reducing the country's deficit. Weak economic growth lowers tax revenues and makes it harder for both countries to tackle their deficits. Neither country is looking as if it has the underlying strength to drag itself out of the debt mess, and if the ECB can't afford it....

What now?
At the risk of ruining a good run (OK, a one-week run), I can still see trouble for the Euro, and a move into the 1.1600's looks possible to me.