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Posted by HY Markets on Monday July 26, 2010 2:44 pm
Forex
– The euro rose against the dollar on Friday after most euro
zone banks passed stress tests, though analysts worried the checks were
not strict enough to reveal the true health of the sector. The four top
French banks and all but one German bank were judged to have sufficient
capital cushions to survive potential losses on their sovereign debt
holdings. Seven of 91 banks failed the tests, including ones in Greece
and Spain, for an overall capital shortfall of $3.5 billion euros. Fear
of a euro zone debt crisis and its impact on European banks drove the
euro below $1.19 last month, its lowest level since 2006. But it began
a swift recovery in July and hit a 10-week high above $1.30 earlier
last week. That was partly driven by data showing the euro zone economy
has been holding up better than anticipated, even as governments
tighten their belts to reign in large deficits. German business
sentiment posted a record jump in July to reach its highest level in
three years, a closely watched survey showed on Friday. The
Munich-based Ifo think tank said its business climate index, based on a
monthly survey of some 7,000 firms, rose to 106.2 from 101.8 in June.
The euro fell sharply last Wednesday against the dollar while the yen
rallied after Federal Reserve Chairman Ben Bernanke expressed concern
about the US economy and dampened risk appetite. Bernanke, in testimony
prepared for delivery to the Senate Banking Committee, said the US
economy faces "unusually uncertain" prospects and the central bank was
ready to take further steps to bolster growth if needed. The comments
pushed the euro down more than 1 percent versus both the dollar and yen
as worries about the health of the global economy spurred investors
into the safe-haven US and Japanese currencies.
The Bank of Canada raised its key interest rate by 25 basis points to
0.75 percent on Tuesday, as expected, but cautioned that the domestic
and global recoveries will be slower than previously expected in a hint
that any further hikes may be gradual. After lifting its overnight rate
for the second straight month from emergency lows, the bank cut its
domestic growth forecast for this year to 3.5 percent from 3.7 percent
and said Europe's efforts to reduce sovereign debt would temper the
pace of the global recovery as well. It cut its growth outlook for next
year to 2.9 percent from 3.1 percent but raised its 2012 forecast to
2.2 percent from 1.9 percent.
Britain's economy grew almost twice as fast as expected in the second
quarter of this year buoyed by a sharp pick-up in services output and
the fastest rise in construction output in almost 50 years, official
data showed on Friday. The Office for National Statistics said gross
domestic product jumped 1.1 percent on the quarter, the fastest rise in
four years, and rose by 1.6 percent on the year, the highest in two
years. The figures, which were well above even the highest forecasts,
may raise doubts over how long the Bank of England will keep interest
rates at their record low, particularly with inflation running so far
above target.
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