EUR could suffer from same fate as USD
Remember the heady days of GBP/USD 2.11+ and EUR/USD 1.55+?
Well what caused it? A run on the USD which was fulled largely by concerns over the US deficit and then in turn by China’s concerns over the weakening USD.
That was more than two years ago and what comes around goes around – this time its EUR that will suffer. Eurozone debt is a huge issue – to the extent that short selling bans have been put in place AND rumours of ECB interference in the FX markets has been heard. Today. 27/05/2010, we here that China is concerned over the issue and may be considering a sell off/diversification away from some of its Eurozone bonds. This could really lead to a significant run on the Euro.
So what does this mean for GBP – well there is some risk that from a global perspective the fall of EUR could infect some parts of the UK economy – shares etc. BUT perhaps the one saving grace is that China do not hold the same sort of reserves in GBP as they do in EUR and USD, and whilst they do still have enough to move the markets there have never been any rumours of them selling off GBP en masse – and if they didn’t do it when we were GBP/EUR 1.05 and GBP/USD 1.31 when would they do it?