Riots, bombing killing humans and the economic measures lag

Thursday, May 6, 2010

The Euro tumbled to its weakest level against the U.S dollar in over a year amid growing concerns that Greece’s fiscal woes will spread to other indebted nations. The 16-nation currency hit a low of $1.27881 for the first time since March 2009 as Moody’s Investors Service placed Portugal’s Aa2 government bond ratings on review for another possible downgrade. In Greece, a nationwide general strike crippled the country, as protests against the government’s recently announced austerity measures turned violent, with a firebomb attack on a central Athens bank killing three people. The riots escalated as citizens of the debt-stricken nation halted flights and shut shops in a direct response Prime Minister George Papandreou’s plans to cut wages and pensions and raise taxes in return for a 110 billion- euro ($143 billion) rescue package. The Euro closed at $1.28126, down 1.17% from the day’s opening price and down 3.80% from the week’s opening price In the forex online market the EUR/JPY tumbled to a low of 119.935. The pair closed at 120.170, down 2.13% from the day’s opening. The Euro continued to fall against the Yen, touching on a low of 119.481 in this morning’s trading session.

President Jean- Claude Trichet will be fighting for the credibility of the ECB as well as the Euro today as he faces questions over the institution's decision to throw away collateral rules for Greek debt. On Tuesday, Trichet altered the rules for the second time in a month to guarantee the ECB will keep accepting Greek government bonds as collateral for loans even though they had been downgraded to junk status. This move comes in a direct contradiction to the declaration made earlier this year by Trichet that the central bank would not alter its collateral rules for the benefit of a single country.

According to economists the central bank may have to extend that to other nations, renew a program of lending unlimited cash to banks for a year, and even start buying government debt if the €110 billion- ($146 billion) bailout plan for Greece fails to stop the euro’s slide. The ECB decision raises tough questions that will make Trichet's monthly news conference "more than difficult," wrote economists at BNP Paribas.

Today, the ECB will announce its minimum bid rate decision – the central bank is expected to hold its key interest rate at its current record low level of 1.0%.

The Euro's weakness helped the dollar index hold on to its impressive gains this week. The index was up at 84.11, not far from a one-year high of 84.31 hit earlier in the session. The U.S Dollar got a boost from data showing U.S. private sector employers added 32,000 jobs last month, bolstering the view that U.S. interest rates will likely rise from record lows well before action on rates in the euro zone.

Companies in the U.S. added workers in April for a third month, according to data based on private payrolls. Data from the ADP Employer Service yesterday reported an increase of 32,000, following a revised 19,000 gain the prior month. The ADP figures were forecast to show a gain of 30,000 jobs. According to economists’ estimations, Friday’s highly anticipated Non-Farm Payrolls are predicted to show another month of strong gains – 197K. Last month, the NFP finally re-entered positive territory and recorded an increase of 162K in the number of employed.

Service industries in the U.S. expanded in April at the same pace as the prior month, indicating factories will drive any pickup in the economy. The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, held at an almost four-year high of 55.4 for a second month. Readings above 50 signal expansion.

Going into its election, the British currency traded near a nine- month high against the Euro, touching on 84.77 pence per euro yesterday afternoon. The GBP rose as the latest UK election polls pointed to a likely victory for the Conservative Party and in reaction to report of strong UK construction PMI and rising retail price inflation.

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