The Euro has weakened once more after the German chancellor Angela Merkel warned that the European project is at risk unless Eurozone leaders and policy makers work harder to resolve the regions ongoing debt crisis.
Merkel’s comment “is quite a remarkable statement,” said Simon Derrick chief currency strategist at Bank of New York Mellon Corp. in London. “That has pulled the rug from underneath the euro. It’s a reminder that you can never take your eye from the euro crisis. On the medium term we are still targeting below $1.20.”
The British Pound has also taken a knock against the Dollar for the first time in four days as the Bank of England hinting that it may be considering further cuts to interest rates.
The Bank of England’s nine-member Monetary Policy Committee was unanimous in a decision to keep its benchmark interest rate at a record low 0.5 percent this month, minutes of the July 4-5 released today showed. While it said cutting the rate had “drawbacks” compared with more asset purchases and the arguments for and against such a move were the same as in June, this assessment could change in light of the new credit measures.
There were some signs of resistance to the introduction of further quantitative easing after two of the nine committee members voted against the action. The MPC minutes said that the near-term outlook for GDP growth has weakened.
“It was a little surprising that the vote was 7-2, we had expected a unanimous vote in favour of QE. Also it was interesting that the committee considered a 75 billion addition but scaled it back because of the new lending schemes,” said Philip Shaw at Investec.
“This does indicate that there is a degree of polarisation on the committee but with inflation falling we don’t see much of a barrier to further QE being sanctioned later in the year if the economy remains weak.”
“It now seemed possible that output would be roughly flat over 2012 as a whole, implying a period of two years where there had been little or no economic growth – a near-term picture somewhat weaker than had been expected at the time of the May Inflation Report,” the minutes said
The yen and the dollar rose against most of their 16 major peers before Federal Reserve Chairman Ben Bernanke gives a second day of testimony to Congress and Asia stocks and U.S. index futures fell.
The Pound to Euro exchange rate is currently trading at 1.275
The Pound to US Dollar exchange rate is currently trading at 1.560
The Euro to Australian Dollar exchange rate is currently trading at 1.186
The Euro to US Dollar exchange rate is currently trading at 1.223
The Euro to Pound exchange rate is currently trading at 0.783
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