As HiFX’s Chris Towner says: “Germany is being forced into a corner where it is they who will need to start to give up if they would like Europe to become more unified. The Spanish finance minister is right to say that the battle for the euro will be waged in Spain, but it will be decided in Germany.”
Eurosceptics suspect Germany will use the crisis to usher in a United States of Europe.
“Is there a hidden German agenda? Probably not,” answers Charles Purdy of Smart Currency Exchange. “They have always thought and made clear that greater fiscal unity is a must for the euro – ensuring that each country adopts their fiscal discipline. Up to now the political will has been lacking but if the euro is to survive and the 'weaker’ countries are to benefit from Germany’s strong credit rating then fiscal union will be what Germany expects.”
World First’s chief economist Jeremy Cook believes greater unification will take decades, saying: “Fiscal union is the endgame for the eurozone – a United States of Europe that has centralised fiscal and monetary policy and leadership based from one location. This will take years to set up and will only follow a huge upheaval of the European political landscape.”
However, while the consensus view is that the eurozone will bind closer together, this doesn’t mean that all 17 members will remain in the club.
“It is becoming increasingly clear that some nations can’t remain in the eurozone,” says Richard Driver of Caxton FX. “A stronger eurozone with a fiscal union is the only way the eurozone can survive but this won’t come soon enough for Greece.”
Stephen Hughes of Currencies.co.uk is sceptical, saying, “As a growing number of voices call for greater fiscal union across the eurozone, it’s still by no means a given that this is an achievable path – don’t forget that even the German people have yet to ratify the fiscal compact.
“But, given the depth of the current euro crisis, we are likely to see a more accommodating stance from policymakers in the coming months. What is clear is that any move to greater unity will take time to implement, something Greece certainly doesn’t have. As for Spain, Portugal and Ireland, the jury’s out for them...”
FOREX-Euro advances on possible central bank action - Reuters UK
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FOREX-Rising Spanish and Italian yields pulls euro lower - Reuters
* Euro cuts gains as Spanish borrowing costs rise
* Italy sells three-year debt at 6-mth high of 5.3 pct
* Investors wary ahead of Greek election on Sunday
By Anirban Nag
LONDON, June 14 (Reuters) - The euro pared gains against the dollar on Thursday as Spanish and Italian bond yields surged, highlighting the risk of euro zone contagion ahead of Sunday's elections in Greece that could lead to the country being pushed out of the common currency.
The euro's outlook may stay bearish after benchmark 10-year Spanish government bond yields hitting 7 percent on Thursday - a level where fellow euro zone members such as Greece and Ireland had to seek international bailouts as it is seen as too expensive in the long term.
The aid deal put together for Spanish banks at the weekend has signally failed to calm the markets, with Italian three-year borrowing costs spiking to 5.30 percent at an auction on Thursday.
The common currency fell to a session low $1.2542 on trading platform EBS, turning lower on the day and off the day's high of $1.25894. It was last trading at $1.2565 with large option expiries cited at $1.2500 which could curtail losses for the time being.
"Spanish yields are creeping up, which clearly indicates that the bank bailout deal will not change anything and they are dragging Italian yields higher," said Stuart Frost, head of Absolute Returns and Currency at fund manager RWC Partners.
"For the euro/dollar, all this means it is on a slippery slope down."
Earlier, the common currency took Moody's downgrade of Spanish government debt to one notch above junk status in its stride.
Many analysts said the euro was likely to trade between $1.24 and $1.27 ahead of Sunday's Greek vote, with investors either reluctant to initiate fresh bearish bets or squaring positions given uncertainty over the election outcome.
Speculators have added to very large bearish bets against the euro in the past few weeks, leaving scope to the euro to stage a short-covering rally if parties supporting austerity and reforms in Greece win at the weekend.
Right now, it is too close to call and a victory for the far-left SYRIZA, which opposes the austerity measures on which Greece's bailout deals are based, would intensify fears of a potential euro zone break-up, and likely push the currency towards recent two-year lows around $1.2280.
A sharp rise in yields on German Bunds, viewed as the euro zone's safest asset, has also raised concerns that the cost of the debt crisis is growing for Germany, the bloc's paymaster. A further rise in German yields would weigh further on the euro, traders said.
SNB REITERATES FRANC CAP
The Swiss franc rose against the euro after the SNB said it was prepared to buy unlimited amounts to defend the 1.20 level. The euro fell to 1.2008 francs on trading platform EBS, from around 1.20196 before the announcement.
Traders said the SNB has been buying lots of euros in recent weeks, stepping up its defence of the cap ahead of the Greek election, which could fuel demand for the safe-haven franc. SNB President Thomas Jordan hinted that capital controls could be introduced if the situation in the euro zone deteriorates and puts more upward pressure on the franc.
"Clearly the SNB is trying to downplay the franc's attractiveness and buy more time. We expect further pressure on the euro/Swiss franc 'floor' in the coming days, especially considering the Greek elections," said Peter Rosenstreich, chief FX analyst at Swissquote Bank, in a note.
Against the yen, the euro eased 0.1 percent to 99.60 , off a session high of 100 yen, with Japanese exporters' bids lined up above that level. The dollar fetched 79.26 yen, off Monday's high of 79.92 yen with expectations of more easing by the Federal Reserve weighing on the greenback.
The New Zealand dollar was up 0.5 percent on the day at US$0.7778, paring gains from Wednesday, when it hit a one-month high of $0.7808.
The kiwi eased after the Reserve Bank of New Zealand said a weak economy and an uncertain global outlook meant rates need to stay at record lows. As expected, the RBNZ kept rates unchanged at 2.5 percent for a 10th straight meeting.
FOREX-Euro holds firm on hopes of central bank action, soft US data - Reuters UK
* Cenbanks' liquidity pledge triggers short-covering
* Soft US data keeps hopes of Fed easing alive
* Euro looking better on charts, rises above Ichimoku kijun line
* Dlr/yen falls after BOJ stands pat
TOKYO, June 15 (Reuters) - The euro held firm against the U.S. dollar on Friday, reflecting hopes of central bank action to counter potential fallout from Sunday's crucial election in Greece, and after disappointing U.S. economic data.
G20 officials told Reuters that central banks from major economies stand ready to take steps to stabilize financial markets by providing liquidity and preventing a credit squeeze if the Greek election result roils markets.
New claims for U.S. state jobless benefits rose for the fifth time in six weeks and consumer prices fell in May, opening the door wider for the U.S. Federal Reserve to further ease monetary policy.
These factors prompted unwinding of market players' massively short positions on the euro, though worries about Spain's troubles in financing its debt remained in place.
The euro traded at $1.2628, maintaining Thursday's 0.6 percent gains and edging near a high of $1.2672 hit right at the beginning of the week in a knee-jerk reaction to the announcement of a plan to support Spanish banks.
While the outcome of the Greek election on Sunday is seen as holding the key in the near-term, the euro's technical outlook is improving, analysts said.
On daily Ichimoku charts the euro rose above major resistance from the kijun line, which stands at $1.2623 on Friday, for the first time since it began declining in May.(The kijun line is the mid-point between the highest high and lowest low of a particular instrument.)
"I'm a bit impressed by the euro's charts today. We may be approaching the time when we have to judge whether the euro's recovery from its bottom on June 1 may become more solid," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
Analysts at RBC Capital Markets said in report that a close above resistance around $1.2625, its January low, is needed to sustain the euro's corrective rebound.
NO EXIT AFTER ALL?
Traders agree that the euro has scope for further gains if Greece's pro-bailout parties manage to win a majority in Sunday's election.
But as speculators' net short positioning in the euro hit a record high last week, some analysts say even if the leftist coalition, which opposes the bailout, wins, the euro could be resilient.
"The initial reaction would be negative (for the euro.) But what's likely to happen after that is a new government will keep its commitment to the euro and start negotiating with creditors," said Junya Tanase, chief currency strategist at JPMorgan Chase.
"In that case, those euro short positions that have been stemming from fear of Greece's exit will have to be wound back," he added.
Euro zone officials said that the euro zone might consider giving a new government in Athens some leeway on how it reaches their austerity target.
Against the yen, the euro stood at 100.27 yen, staying above the 100 yen mark, above which Japanese exporters offers are lined up.
The euro's latest rebound from its two-year low of $1.2280 on June 1 started after disappointing U.S. payroll data rekindled speculation of another stimulus from the U.S. Federal Reserve.
Although Chairman Ben Bernanke dropped no hint of an immediate action when he spoke last week, hopes for more policy steps were heightened after the UK government and the Bank of England unveiled a 100 billion pound ($155 billion) funding scheme for banks to boost credit on Thursday.
Thus the dollar parked near its lowest level in three weeks against a basket of currencies, with the dollar index standing at 81.81. A fall below 81.785 will take it to the lowest level in more than three weeks.
Against the yen, the dollar fell 0.4 percent to one-week low of 78.97 yen after the Bank of Japan announced no policy change, though that is in line with market expectations.
Commodity-linked currencies also held firm on hopes of more policy support for the global economy, with the Australian dollar staying near a one-month high of $1.0034 hit on Thursday. It last stood at $1.0020. (Additional reporting by Antoni Slodkowski Editing by Ramya Venugopal)
Euro firm on hopes of central bank action, soft U.S. data - Reuters India
TOKYO |
TOKYO (Reuters) - The euro held firm against the U.S. dollar on Friday, reflecting hopes of central bank action to counter potential fallout from Sunday's crucial election in Greece, and after disappointing U.S. economic data.
G20 officials told Reuters that central banks from major economies stand ready to take steps to stabilize financial markets by providing liquidity and preventing a credit squeeze if the Greek election result roils markets.
New claims for U.S. state jobless benefits rose for the fifth time in six weeks and consumer prices fell in May, opening the door wider for the U.S. Federal Reserve to further ease monetary policy.
These factors prompted unwinding of market players' massively short positions on the euro, though worries about Spain's troubles in financing its debt remained in place.
The euro traded at $1.2628, maintaining Thursday's 0.6 percent gains and edging near a high of $1.2672 hit right at the beginning of the week in a knee-jerk reaction to the announcement of a plan to support Spanish banks.
While the outcome of the Greek election on Sunday is seen as holding the key in the near-term, the euro's technical outlook is improving, analysts said.
On daily Ichimoku charts the euro rose above major resistance from the kijun line, which stands at $1.2623 on Friday, for the first time since it began declining in May.(The kijun line is the mid-point between the highest high and lowest low of a particular instrument.)
"I'm a bit impressed by the euro's charts today. We may be approaching the time when we have to judge whether the euro's recovery from its bottom on June 1 may become more solid," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.
Analysts at RBC Capital Markets said in report that a close above resistance around $1.2625, its January low, is needed to sustain the euro's corrective rebound.
Traders agree that the euro has scope for further gains if Greece's pro-bailout parties manage to win a majority in Sunday's election.
But as speculators' net short positioning in the euro hit a record high last week, some analysts say even if the leftist coalition, which opposes the bailout, wins, the euro could be resilient.
"The initial reaction would be negative (for the euro.) But what's likely to happen after that is a new government will keep its commitment to the euro and start negotiating with creditors," said Junya Tanase, chief currency strategist at JPMorgan Chase.
"In that case, those euro short positions that have been stemming from fear of Greece's exit will have to be wound back," he added.
Against the yen, the euro stood at 100.27 yen, staying above the 100 yen mark, above which Japanese exporters offers are lined up.
The dollar traded at 79.42 yen, trapped between selling pressure from Japanese exporters above 80 yen and support from the Ichimoku kijun line at 79.10 yen for more than a week.
Participants expect no market impact from the Bank of Japan's two-day policy meeting ending on Friday, from which no policy change is expected.
Commodity-linked currencies also held firm on hopes of more policy support for the global economy, with the Australian dollar staying near a one-month high of $1.0034 hit on Thursday. It last stood at $1.0013.
(Editing by Eric meijer)
Money managers reap crop insurance harvest - Financial Times
June 14, 2012 9:30 pm
Iain Duncan Smith: poverty is not solved by just more money - Daily Telegraph
Figures to be published today are expected to show that the Government failed to meet its statutory target to halve the problem by 2010 – despite the huge amount of taxpayers’ money spent on tackling it.
Mr Duncan Smith will unveil a new analysis which will show that hundreds of thousands of children will be lifted out of poverty if at least one of their parents works 35 hours a week earning the minimum wage.
The introduction of the universal credit, under the Government’s welfare reforms, will mean that people returning to work from benefits will continue to receive some state support.
Any child living in a household which earns less than 60 per cent of the typical income is defined as living in poverty. This is likely to be changed so that children living in workless households or those with drug-dependent parents are highlighted.
Mr Duncan Smith will also set out plans to change the definition of child poverty so that a more sophisticated analysis is used.
Speaking ahead of his speech at the Abbey Community Centre in London, Mr Duncan Smith told BBC Radio 4's Today programme: "What I'm talking about is getting away from a system that got so trapped in the idea of meeting a relative income target so narrowly that more and more money was spent on welfare but keeping people out of the work process.
"What we need to do is make sure we tackle poverty but tackle it in the process of trying to move them on (to work).
"If you just measure relative income levels you know nothing about what's happening to the family."
In his speech, he will accuse Labour of “pouring vast amounts of money” into increased benefit payments to tackle poverty. He is expected to say that the strategy has failed and parents need to be helped back to work rather than simply subsidised by the state.
He will say: “Getting a family into work, supporting strong relationships, getting parents off drugs and out of debt — all this can do more for a child’s wellbeing than any amount of money in out-of-work benefits.
“With the right support, a child growing up in a dysfunctional household, who was destined for a lifetime on benefits could be put on an entirely different track — one which sees them move into fulfilling and sustainable work. In doing so, they will pull themselves out of poverty.”
He will add: “Our latest analysis suggests that universal credit will ensure the vast majority of children will be lifted out of poverty if at least one parent works 35 hours a week at the minimum wage — or 24 hours if they are a lone parent.
“For those who are able to work, work has to be seen as the best route out of poverty. For work is not just about more money — it is transformative. It’s about taking responsibility for yourself and your family.”
Mr Duncan Smith will indicate that Labour wasted large amounts of public funds as it failed to halve child poverty. “The last Government spoke about the need to tackle poverty, and poured vast amounts of money into the pursuit of this ambition — £150 billion was spent on tax credits alone between 2004 and 2010.
“Overall, the welfare bill increased by some 40 per cent in real terms, even in a decade of rising growth and rising employment,” he will say.
Ministers are drawing up plans to introduce a series of measures to gauge whether families are living in poverty, such as whether parents have drug or alcohol problems or whether they are working.
In today’s speech, the Work and Pensions Secretary is expected to defend the need to change the definition of child poverty. “If a family has less than 60 per cent of the median income it is said to be poor, if it has 60 per cent or more it is not,” he will say.
“By this narrow measure, if you have a family who sits one pound below the poverty line you can do a magical thing. Give them one pound more, say through increased benefit payments, and you can apparently change everything — you are said to have pulled them out of poverty. But increased income from welfare transfers is temporary if nothing changes.”
Mr Duncan Smith’s call for disadvantaged families to return to work may come at an inopportune time with unemployment rising as the double-dip recession has led to a lack of jobs.
William Hague, the Foreign Secretary, caused controversy recently by telling Britons they had to work harder to help the UK escape from recession.
Money market fund assets fall to $2.554 trillion - Yahoo Finance
NEW YORK (AP) -- Total U.S. money market mutual fund assets fell by $10.68 billion to $2.554 trillion for the week that ended Wednesday, the Investment Company Institute said Thursday.
Assets of the nation's retail money market mutual funds fell by $550 million to $890.20 billion, the Washington-based mutual fund trade group said. Assets of taxable money market funds in the retail category fell by $50 million to $703.57 billion. Tax-exempt retail fund assets fell by $500 million to $186.63 billion.
Meanwhile, assets of institutional money market funds fell $10.13 billion to $1.664 trillion. Among institutional funds, taxable money market fund assets fell $8.47 billion to $1.579 trillion; assets of tax-exempt funds fell $1.66 billion to $84.77 billion.
The seven-day average yield on money market mutual funds was 0.03 percent in the week that ended Tuesday, unchanged from the previous week, said Money Fund Report, a service of iMoneyNet Inc. in Westborough, Mass.
The 30-day average yield was also unchanged from last week at 0.03 percent. The seven-day compounded yield was flat at 0.03 percent. The 30-day compounded yield was unchanged at 0.03 percent, Money Fund Report said.
The average maturity of portfolios held by money market mutual funds was the same as the previous week at 45 days.
The online service Bankrate.com said its survey of 100 leading commercial banks, savings and loan associations and savings banks in the nation's 10 largest markets showed the annual percentage yield available on money market accounts was unchanged from last week at 0.13 percent.
The North Palm Beach, Fla.-based unit of Bankrate Inc. said the annual percentage yield available on interest-bearing checking accounts was unchanged from the week before at 0.06 percent.
Bankrate.com said the annual percentage yield on six-month certificates of deposit was also unchanged from the previous week at 0.21 percent. The yield on one-year CDs was unchanged at 0.32 percent and flat at 0.51 percent on two-and-a-half-year CDs. It fell to 1.11 percent from 1.12 percent on five-year CDs.
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