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FX Day Trading - 23 November 2011
US deficit impasse brings recession threat
Barroso revives "eurobond" idea
MPC minutes today; will there be more QE?
US politicians unable to agree on a strategy to reduce the country's deficit have fallen to blaming one another for their failure.
Because the automatic spending cuts built into the super committee's mandate would mean pain for Democrats and Republicans alike, they were supposed to have frightened participants into agreement.
It didn't work, so sacred budgetary cows of both political hues will be led to the slaughter in 2013. The Pentagon alone will take a $500bn hit and the States could end up with a smaller navy than Rutland.
Over ten years $1.3tr will be cut from current spending plans. As Greece has discovered to its dismay, spending cuts are not the best route to economic growth. Unless Congress and the administration can get their act together analysts fear it could mean a return to recession in America.
Following the mantra that the best 'defense' is a good 'offense', the US is pointing the finger at Euroland. Yesterday its ambassador to the EU criticised its approach to the Club Med debt crisis as inadequate. In an outburst of blatant pot-and-kettlism he said there needs to be "a commitment of significant resources to deal with the problem".
EU Commission President Manuel Barroso agrees with him. Seizing upon the suggestion set out in Tuesday's Daily Brief, he is resurrecting the proposal for multi-national "Eurobonds" that would use the issuing power of the strongest states to underwrite the needs of weaker countries.
Italy, Spain, France and Germany would all be lumped together as collective borrowers: eurobond buyers would not be able to tell one from the other.
Spain's treasury bill auction yesterday demonstrated that something needs to be done. It was no great surprise that Spain had to pay 5.11% interest on three-month borrowings and 5.23% for six-month money, but it must have hurt.
No great damage was done to the euro, however. Against the US dollar it is down by less than a cent from Tuesday's opening level and against the pound it has lost just a couple of dozen ticks.
Helping sterling through the day were a lower-than-expected public sector borrowing figure and speeches by two members of the Monetary Policy Committee. David Miles, talking in York about "Mortgages, housing and monetary policy" and Paul Tucker, who offered "A few remarks on current monetary policy" at a City lunch were both very much off-message.
There was only one mention of recession, and that only in a historical contest. Quantitative easing received no greater coverage. The two MPC members appeared to be making no effort whatsoever to talk down the pound, surely a flagrant breach of Bank policy.
When the minutes of November's MPC meeting come out this morning expect to see plenty of reference to recession and QE (or asset purchases). Both will have been discussed; it is their treatment and context in the minutes that will matter to online spread betting investors.
Even though the governor hinted at such a possibility only last week, any more than a sniff of the idea that another round of QE is in the offing would mean difficulties for the pound.
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'EUR/USD Spread Betting Market Lower Following Spanish Bond Auction', Article by Moneycorp, last update: 23-Nov-11
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