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Increased speculation of a double-dip recession
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| Contributor | Jason |
| Last Edited | Jason Jun 05, 2010 05:25pm |
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| Category | Speculative |
| Author | Darrell Jobman |
| News Date | Wednesday, June 2, 2010 02:55:00 PM UTC0:0 |
| Description | The Euro was initially able to hold above 1.2250 against the dollar on Tuesday despite the warning of very substantial European financial-sector debt-write-downs of potentially over EUR160bn by the ECB.
The Euro was then subjected to heavy selling pressure during the European session with fears over the debt situation and increased speculation that there would be a renewed downturn in the European economy and a double-dip recessiondouble-dip recession. Underlying confidence in the ECB has also deteriorated and this was another contributory factor for Euro weakness. The currency weakened sharply to test 2010 lowslows near 1.2150 and there was a temporary retreat to below this level for fresh four-year lows.
The US ISM index fell slightly to 59.7 for May from 60.4 the previous month, but this was slightly higher than expected and helped improve sentiment towards the US and global economy. Wall Street was able to recover from initial losses and there was a significant improvement in risk appetite. In this environment, there was a recovery in the Euro and a squeeze on short positions pushed the currency to a high around 1.2350.
The Euro-zone unemployment rate rose to a 10-year high of 10.1% while Spanish Savings banksSpanish Savings banks were put on a negative ratings watch by Standard & Poor’s which reinforced unease over the European financial sector. Underlying Euro sentiment was also still fragile and it retreated to the 1.2250 area later in the US session as rallies continued to attract selling pressure. There was speculation over longer-term capital outflows while US stock indices also came under renewed selling pressure.
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