Having perked up sharply following the ECB’s announcement of a record support package for the euro and the eurozone, the euro is under pressure again just a day later.
The reason is simple enough: as the BBC’s Robert Peston put it last night, “the ECB has addressed the symptom but not the cause” of the current crisis. Greece’s profligate expenditure over a decade or more was matched by what Rod Liddle in the Times calls the “siesta nations” – Spain and Portugal. Markets are worried that the necessary austerity measures needed to bring huge deficits under control will not be implemented. So the ECB is attempting to paper over the problems afflicting its southern members by creating a comforting-sounding bail-out fund rather than dealing with them head on.
And that spells more trouble for the euro. But against what? Not sterling – the UK has its own batch of headaches to deal with, including a hung parliament and the prospect of rising taxes and slashed public expenditure as the government attempts to rein in the UK’s scary deficit.
No, the one major global currency that seems to have some legs at the moment is the US dollar. The latest employment numbers and consumer spending figures were surprisingly strong – payrolls climbed by the most in four years in April and consumer purchases will grow at an annual pace of 3% in the second quarter, say economists – up from the 2.5% expected until recently. As such, for now the US economy is “taking on a life of its own” say Bob Willis and Alex Tanzi.
The US up-tick may not last, but for now a short EUR, long USD trade looks good.
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