Welcome to our account of movement in the foreign exchange rates overnight.
“If you’re not going to solve anything, why are you having a summit?”
This is the question the markets posed to EU leaders overnight, and the absence of an answer has helped push the pound higher against the crumbling euro. The seemingly pointless summit – in which we’re not to expect any solutions to the debt crisis – commences tomorrow, so it’s quite possible the pound could head higher ahead of that.
Alas, the strengthening pound has little to do with glad economic tidings from the UK this morning. Instead, Bank of England governor Mervyn King has told us he’s ripped up his 2012 economic forecasts for the UK , as the Eurozone debt crisis risks extending the global downturn for what could be years. In addition, the government borrowed much more than forecast last month, as falling tax receipts reveal a strategy of “cut, cut, cut” may not be having the results George Osborne hoped for. That could put downward pressure on the pound to come, even as the outlook in Europe deteriorates.
How successful the Coalition is at slashing the deficit will have a big influence on the future strength of the pound.
The European Union is looking less and less like a union lately, and more like 27 national leaders each dancing to a different tune. So it goes ahead of the vaunted summit tomorrow, in which the differences in opinion about how to end the crisis – particularly between Germany and the periphery – remain irreconcilable. That of course could see the euro continue to weaken, as markets despair of a quick end to the turmoil.
Like a long-running soap opera well past its prime, the Eurozone debt crisis looks set to drag on with no end in sight, much to the displeasure of long-suffering viewers.
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I will return with my next update tomorrow.
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