The UK sees yet more reaction to the government’s spending cuts. This time civil servants face threats of redundancy and pension terms, as well as a two year pay freeze. This is in a push for a system to allow lower rates of pay outside London, they have already proposed a pay freeze for all public sector workers. As you can imagine Unions have vowed to fight the changes that might bring about 600,000 public sector job losses. Meanwhile the sterling is down on the PMI data from yesterday which  dropped below expectations.

The EMU’s PMI came on slightly better than expected showing that the economic situation in the euro zone is expanding slowly. Retail sales also came out well but weak yesterday at 0.2% up from -0.9%, another indication of positive economic growth however fragile and slow that may be. This caused euro to gain ground against sterling. Consumer demand is weak because unemployment in the euro zone is near 12-year highs and may rise further, freezing wage growth and limiting households’ spending.  There seems to be more good news for the euro as apparently Greece is now confident of meeting its target to cut the budget deficit by 40% this year, but revenue growth targets remain risky. The ECB has also ticked off Romania’s government for forcing a 25% pay cut on employees of the country’s central bank, saying that their actions violated European treaties allowing monetary powers to act without political guidance. They also cracked down on Hungary over plans to cut the central bank governor’s pay.

The euro fell yesterday after hitting the six-week high on weak US jobs data, while the dollar gained ground against several currencies. Traders were wary of forcing the dollar lower with U.S. markets closed on Monday for Independence Day. Concern about the US economy rose after the jobs data showed weak private hiring, raising fears that the global economy could be heading for a double-dip recession.

A very quiet day for data today, with Switzerland’s Consumer price index at 8:15 and the US have their Non-Manufacturing at 15:00. This is because the markets are still quiet from Independence Day, and are gathering momentum for the end of the week when there is a rush of important releases.

Have a great Tuesday!