Welcome to the Pure FX account of the latest changes in the foreign exchange rates.
This is intended as a brief guide to movements in the exchange rates overnight, to put you in the best position when you exchange currencies.
The UK pound came out on top yesterday, taking ground across the board, as doubts Spain will request a European Central Bank bailout brought the euro rally to a sudden end.
The markets have been betting on a Spain bailout, ever since ECB president Mario Draghi unveiled his bond buying scheme almost a fortnight ago. It was designed with Spain specifically in mind, to purchase its bonds and prevent it crashing out of the euro.
However, the secretive character of Spanish premier Mario Rajoy is now spooking the markets, as he fails to signal whether he’ll accept aid or not. Rabobank rate strategist Richard McGuire notes for instance, “The realisation is dawning [he] might not be rushing.”
Trouble is, it’s not as though the situation in Spain is improving. Spaniards withdrew €26bn in deposits last month, making the country’s banks ever more dependent on ECB loans to stay afloat. Simon Maughan, a financial strategist at Olivetree Securities, notes: “they won’t start coming back until people are sure they’re safe and that Spain is secure.”
In addition, some one million people marched on Madrid over the weekend, demanding a referendum on whether additional budget cuts get made.
In this context, Mr. Rajoy’s inaction makes him look not just secretive but negligent. This tells us why the markets are getting antsy, and why the pound, as a safe haven, has taken the lead.
The latest UK inflation data sees release today. If this shows inflation falling back to the Bank of England 2.0% target, the pound could extend its gains, as this would put less pressure on household finances in the months ahead.
In addition, the latest German economic sentiment poll from ZEW comes out, telling us how businesses and consumers are feeling in Europe biggest economy. This will give us a clue how much the crisis in Europe’s periphery has infected its core.
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