Welcome to our account of movements in the foreign exchange rate overnight.
€30 billion now, and €70 billion later? The euro sits at its lowest point against the pound since October 2008 today, as Europe’s politicians rush through a plan to aid Spain’s banks. Spain will now receive 30.0% of its €100 billion by the end of this week, in an attempt to quickly bolster its finance sector, and send yields on its government bonds (currently at 7.0%) back to a sustainable level.
Will the plan succeed? Well, it’s possible the €30 billion will provide relief in the short term. Past this week though, Spain has a lot to do to get back on its feet economically. Furthermore, much about the bailout remains unknown, as Rick Lloyd at IFR Markets comments: “No comment on ESM seniority & vague comments point to more delay.”
Hence, we could easily see the pound at fresh heights against the euro before long.
Turning to the UK, its three cheers for Her Majesty meanwhile! Britain enjoyed a 1.4% YoY boost in retail sales last month, as people celebrated the Queen’s Jubilee, according to retail group the British Retail Consortium. This sent the pound half a cent higher against a group of currencies, including the Canadian dollar.
Furthermore, it’s quite possible this demand could last, although the Jubilee was a one-off factor. This is because inflation is falling, making many items that much more affordable. As Howard Archer at IHS Global Insight notes: “It is possible that a recent easing of the squeeze on consumers’ purchasing power supported sales in June.”
Hence, the pound could soon begin a winning streak if this continues.
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