The Pound And Euro Face Uncertain Times

Published on 05/10/2010 in Your Spanish Home

As the month of August wore on, the logic of the FX market wore out. Silly-season nonsense took over the reins from the usual market drivers, economics and commonsense. It is not unusual in the dog days of summer that the senior investment banking folk bag the school holidays, leaving the juniors to mind the shop with strict admonitions to keep their heads down and avoid losing money. Unexpected moves - even some of the expected ones for that matter - cause needless consternation and bigger than usual spikes and troughs. Nervousness, not conviction, rules.

Euro calculatorAdd to that twitchy foundation a growing wariness about double-dip recession and the market is primed to confuse itself. An example of the confusion came with the first revision to Britain's second quarter gross domestic product (GDP) figures. The original estimate had been that GDP grew by 1.1% in the second quarter of the year; not as good as Germany's 2.2% but better than Euroland's 1.0%. Analysts expected the first revision to leave the number unchanged at 1.1%. Instead, the Office for National Statistics increased it to 1.2%.

Normally, such an upward revision would be good for the currency - any currency - but not these days. No, investors' first reaction was to sell the pound, taking it half a cent lower against the euro. Whether they did so because of, or despite the upwardly revised figure does not matter. They did it because, with the effects of Mr Osborne's Austerity Budget mining the road ahead, Things Can Only Get Worse.

Quite how much worse the UK economy will look in six months' or a year's time, nobody knows, but that is the direction most investors are assuming. The pessimism takes the shine off what would otherwise be a celebratory time for sterling. Fortunately for its position against the euro, there are also worries about the economy of the euro zone. Germany, as noted, achieved very strong export-led growth in the second quarter of the year, but it was a single rose among the many thorns which dragged overall Euroland GDP growth down to less than half that level.

The German economy is doing well enough but the others have to pull their weight too. There is also ongoing concern about sovereign debt in Euroland. The Spanish prime minister has hinted that he may relax the austerity regimen in order to stimulate the economy. The long-term viability of the three-month-old safety net that was erected to support Greek sovereign debt has also been called into question.

The nervousness about the UK economy and Euroland sovereign debt are balancing each other out for the time being between €1.15 and €1.25. Sterling was the winner in August, but it has been finding it tough going in September.

Emerging data has been of precious little help to sterling. According to the Bank of England, mortgage approvals numbered just 45k in August, fewer even than the downwardly revised 47k in July. Public sector net borrowing for the same month jumped above £15 billion, a quarter more than analysts had projected. Hometrack reported another month of decline for house prices in September, with a -0.4% fall following August's -0.3% drop.

So lots of data that has impacted upon the sterling to euro range and the possible range of up to 10 cents deos not indicate a stability in the marketplace.

If you are looking to gain the most for your money why not contact Moneycorp the foreign exchange specialist who can take care of all your money transfers to and from Spain; however small or large. Their local experts make the process quick, easy and highly cost-effective. For more information on how Moneycorp can help get you more currency than from your bank contact Michael Campbell in the Costa del Sol office on +34 951 319 700 or email michael.campbell@moneycorp.com. Please quote Eye on Spain when contacting us.

Written by: Moneycorp

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For more information about how Moneycorp can save you money when sending money abroad, please visit the dedicated Eye on Spain/ Moneycorp website.




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Comments:

Lina said:
13 August 2013 @ 19:10

B"HIt may "seem so natural and obovius and logical today" if you don't consider:- the construction of an European superstate negative a)for the populations of the member states and b) for the Jews;- negative the fact that the European Parliament is parliament only in name, in as much as the real legislative institution in the EU is the Council and the council is made up of government reps of the member states. What does it mean? It means that in Europe the Governments legislate and the national parliaments are by-passed by these governments, using the EU structure. Jews have seen in Germany 70 years ago what happens when legislative, executive and judiciary powers mingle: it also is called "totalitarism" and we should be crying out loud against it.- If you don't consider the whole operation a first step in and for the war of Magog. These nations are already on our northern border, just as prophesized, empowering Ishmael in Lebanon and G-d forbid they will be marching up and down in our central reagions in a few years, in some "peace-keeping" effort.- Do you like banknotes without faces? Don't you think it's pure horror?


Graham said:
06 October 2010 @ 19:50

No mention of the BOE keeping interest rates at 0.5 %, this staying this way for the year ahead and its effects on strengh of the pound. Whilst the advice is to contact Moneycorp for all your curreny needs I am keeping in mind the colapse of a currency exchange company this week. What are we to do if we are planning to buy a villa in Spain before the year end? Already my des-res in spain has jumped £10,000 from a few weeks ago due to exchange rate. What to do !???

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