THE BIGGEST problem for any country or company is a crisis of confidence. During the peak of the global recession, we saw what a lack of confidence can do to the biggest financial institutions and the richest nations in the world.
Although everyone may have hoped that those problems were behind us, the rapid deleveraging that we have seen over the past few weeks indicate that we are in the midst of another crisis brought on by the fear that certain countries within the Eurozone could default on debt.
Although this crisis is very different from the one that triggered the global recession, it is no less powerful. Investors around the world are so concerned about putting their money into European assets that they have bailed out of anything Europe – including European stocks and the euro. Both instruments have been sold aggressively since the middle of January. Unless European policymakers do for Greece, Portugal or Spain what the UAE did for Dubai, investors will be very weary of diving back into European assets.
DEBT OVERSHADOWING DATA
Therefore even though there are a number of economic releases due from Europe this week including GDP numbers from the Eurozone, trade and industrial production numbers from Germany and the UK, sovereign debt problems will most likely overshadow economic data.
The Bank of England is also set to release its quarterly Inflation Report and based upon the central bank’s monetary policy statement, it is not convinced that the improvements in the economy and uptick in inflation is here to stay. If investors have reasons to be less concerned about European fiscal deficits, the euro and stocks could recover, otherwise the path of least resistance is downwards.
Forex commentary by Kathy Lien, director of currency research, GFT. Read her daily commentary at www.GFTUK.com/commentary or e-mail your questions to BorisandKathy@gftuk.com