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Europe cracks start to appear as debt crisis rumbles on

(Sharecast) The continued problems in Europe, as well as fears of further fiscal tightening measures in Asian economies, have continued to weigh on risk appetite and pushed the US dollar index above its 50-day moving average, and to its highest levels since the end of September.

Comments by Chinese premier Wen Jiabao that China is considering further measures to deal with inflation have also helped pushed investors out of risky assets and put the brake on recent declines in the US dollar.

The dollar has also been helped on its way by remarks by St Louis Federal Reserve Bank’s James Bullard that there is the possibility that “the Fed will not buy all $600bn under QE2”, especially if the economy were to improve.

In Europe, Ireland continues to refuse to bow to EU pressure to accept a bailout, and cracks have already started to appear in the united Europe front of recent weeks. Austria’s decision to withhold its portion of bailout cash for Greece, saying that the Greeks have not met their commitments to the EU on public finances, could be the beginning of the unravelling of the emergency bailout fund, or EFSF as it is known. Finland has also served notice that it is opposed to bailout cash for Ireland.

Pressure continues to mount on Greece, Portugal and Spanish bond yields as fears of a contagion effect start to escalate.

Speculation continues to grow that Ireland may be forced to accept funds to keep its banks funded. However, Irish officials have continued to straight bat any proposals that lead to that conclusion, especially given the fact that they do not have to return to the bond markets until June next year, and the risks to their own fiscal sovereignty such a step would bring.

Yesterday’s October CPI inflation figures for the UK not surprisingly came out above expectations, with year-on-year figures at 3.2 percent, a four-month high, necessitating Governor Mervyn King having to write to the Chancellor explaining why the Bank of England has missed its inflation target again.



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