Solid news for UK economy but GBP/EUR still low
The Euro is subdued against the dollar and sterling this morning as the sovereign debt crisis again raises its head. Yesterday the German finance minister admitted that Greek debt may need to be restructured, despite last year’s £97bn bail out. The reason for this restructuring is that the Greek government must now pay 13% interest to borrow funds for 10 years. The UK’s borrowing costs are 3.69%. Other problems include a slumping economy and slow progress in tackling tax evasion, both of which is leading to a revenue shortfall. In addition, Moody’s downgraded Ireland’s sovereign rating by two notches which will lead to higher borrowing costs for Ireland.
The current downward pressure on the Euro may only be temporary, yet questions remain over how the European debt crisis will be dealt with, and the Euro will remain vulnerable to poor data from the periphery.
Today sees the release of both European and US inflation figures, both of which are expected to come in at 2.6%. If there is a surprise to the upside it is likely that the Euro would appreciate as the possibility of further rate hikes were brought forward. The dollar on the other hand is likely to be less affected due to the FED’s dovish stance which appears unlikely to change in the near term.
Also released this week in the UK was the consumer confidence index which bounced back by 5 points from its historic low in February. Although current sentiment remained subdued, rising by just one point, more optimistic views towards the future helped to push the index higher.
So, a good week all in all for the UK government and the MPC with better than expected inflation figures, jobless claims, consumer confidence and the support of the IMF in their austerity measures. However, much like a season as a Newcastle football fan, expect more bumps in the road to recovery in becoming the champions of Europe.