Planning to buy euros? Then you might be pleased to know the pound has bounced back against the common currency this afternoon, climbing more than half a cent after its declines earlier this week. This of course means you’ll get more euros for your sterling.
Why this surge in the pound? Well, it’s all down to the deteriorating economic outlook in the Eurozone, where even the big beast economies are feeling the pinch. This afternoon, the Bank of France predicted France would enter double dip recession in Q3, with output contracting -0.1% in addition to earlier declines. In particular, falling car sales account for this poor economic fortune, and are 7.0% down compared to June 2011. This will be France’s second recession since 2009.
In addition, Germany too is subject to contagion at this point. Exports fell 1.5% in June, as orders from other Eurozone economies decline. Of course, you could say this is just desserts for Berlin. Germany has benefited enormously from the cheap euro, yet has refused to help support its partners in the currency union. Given that it in fact depends on those partners to grow, a deteriorating trade balance is hence poetic justice.
Looking ahead, we can expect the euro to continue to fall. This is because, in spite of universal statements of support for the euro from Europe’s politicians, nothing of substance has yet emerged to aid the currency. As Paul Kavanagh, partner at Killik & Co. puts it: “We’re long on promise, short on facts at the moment.” That will aid the pound against the euro, as markets again turn sceptical.
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