Week in FX Europe – Germany and the UK Seed European Optimism

EUR/USD had a topsy-turvy week. Started the week at 1.3336 and in early Wednesday trading shot up to 1.3450 just to slowly deflate back to 1.3350 by Friday afternoon. Germany posted hopeful GDP growth numbers, consumer confidence has reached two year highs. The United Kingdom also posted impressive numbers this week, specially considering it narrowly avoided a triple dip recession. Britain’s GDP growth matched Germany’s 0.7 percent. Exports and employment are the biggest improvements driving the UK recovery which could trigger a raise in interest rates sooner than the Bank of England three year forecast.

Fed Tapering Continues to Drive the Market
The FOMC minutes were released in the US. Published two weeks after the FOMC statement the minutes brought very little insight to the market. The Fed continues to push for tapering to reduce the costs associated with the bond buying program. However the fear that the economy might not be ready is expressed by wanting to see further proof of a sustained recovery in the US economy. Even an uneventful FOMC minutes release where nothing new was said managed to sap the EUR upward trend of its momentum.

Italian Coalition in Danger
Italy’s fragile political coalition could collapse given the latest chapter in the Berlusconi saga. When the courts decided to fast track his trial it was as seen as a political move. Berlusconi argues that If the case was allowed to continue on a regular case timeline some of this crimes would be out of the statute of limitations. The fact is that he controls a sizeable portion of the votes that make up the coalition and his party is accusing the government of a politically motivated decision. If Berlusconi is banned from political life, he could decide to implode the coalition in retaliation. The Italian economy is far from achieving quarterly growth, but it has managed to reduce the speed of contraction.

• German Finance Minister: ECB Will Raise Rates Once Economy Recovers
• Germany and the UK Lead Economic Recovery
• New Greek Deal to Come with Long Debate
• Berlusconi Scandal Could End Italian Coalition
• UK Growth Revised Upward Optimism About Faster Recovery Rises
• Business Activity in the Eurozone Grows to 2 Year High
• UK Borrowing Rises in July
• Outsourcing Could Cost Europe 1.9 Million Jobs
• Greece Requires 3rd Aid Package – Germany
• German FinMin: Greece Will Need a Third Aid Deal
• ECB to Visit Greece to Discuss Reforms
• Italian PM Warns About Fragility of Government and Impact of a Collapse
• Spanish Bad Loan Ratio Rises to 11.6 Percent in June
• UK Housing Prices Drop, But Still Ahead of Start of Year
• Retail Revival Supports a Wider Recovery in the U.K. Economy
• U.K. Recovery Builds Momentum

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