Pound Euro rate tumbles to five-month low
In spite of a downbeat assessment of Germany’s economic situation by the nation’s central bank yesterday the Pound has fallen to a fresh five-month low against the Euro. The Bundesbank issued a report which warned investors that economic activity in the giant Teutonic economy may contract slightly during the last three months of 2012. Despite this disappointing development, the GBP/EUR exchange rate still managed to break down to its lowest level since the start of May at 1.224. July’s visit to the high 1.2800s is now a distant memory and the pair now appears to have been massively over-bought at these rates.
Spain’s elections found Rajoy’s party holding power in his home region; but the broader results were more mixed. Nevertheless, there is no imminent threat to the Prime Minister or his policy course for now. A little more significant was Moody’s downgrade of 5 Spanish regions, yet that doesn’t translate into a sovereign rating cut that prevents it from borrowing from the ECB. In Greece, two members of Prime Minister Samar’s party left due to disagreements on austerity. A concern but nothing new.
The downturn in Britons’ personal finances appeared to be bottoming out in October, with the smallest deterioration in almost two years, according to research company Markit. The Household Finance Index rose to 39.0 in October from 38.4 in the previous month, reaching its highest level since December 2010. However, the current level still indicates that many more people experienced a worsening in their situation than an improvement.
There are ongoing concerns regarding tensions in the Asian economy. Data released yesterday revealed that Japanese exports to China had tumbled by an annualised 10.3% in September thanks to the boycotting of Japanese products and services by Chinese citizens in protest at Japan’s territorial claim over the disputed Diaoyu Islands, which triggered a bitter political standoff between the policymakers of Asia’s two leading economies last month.
The most recent policy meeting minutes from the MPC revealed a clear divide by policy makers, which in turn prompted market participants to question whether the BoE will raise the APF when the MPC meet in November. As such, this week’s release of the GDP report will likely prove crucial in enabling the MPC to make a decision with regards to more policy easing. In turn, there is a risk that EUR/GBP which benefitted from improved credit market conditions in the Eurozone may reverse course.
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