Range of the week - 1.2708 - 1.2878
Variance on £10k - €170
Sterling /Euro reached 1.2878 on Monday, a rate of exchange not traded since October 2008 – clearly a great time to be buying Euros!!
In Europe this week we continued to see more of the same, looming bankruptcy for Spanish Provinces, dangerously high borrowing costs, and fears of further contagion.
A number of the larger Spanish provinces have now made it clear that they will need emergency funding from the Spanish Government as their income has plummeted, and unemployment costs have soared. A clear indicator that the overall health of the Spanish economy – right down to grassroots level – is weak.
This issue is now becoming more common across southern Europe, and the rate the markets are charging these countries to borrow is a clear reflection of their lack of confidence in the Governments/authorities to quickly and efficiently resolve the problem. Spanish 10 Year borrowing cost is now above 7.5% and Italian costs are not far behind.
So besides the better weather, Europe is having a worse week than the UK.
The Pound's rampage higher against the Euro was however stunted this morning as the first estimate of Quarter 2 GDP in the UK was released. The figure showed the economy has contracted by 0.7% over the last quarter – this is over 3 times worse than educated forecasters had predicted.
What does this mean for rates? Well, with rates hitting a high earlier in the weak and economic data locally disappointing, in the short-term some consolidation/profit taking is likely down towards 1.25 before slowly grinding higher in the medium to long term.
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