The Euro hit a two year low today after investor confidence plummeted over the lack of strong action to resolve the crisis.
The two day meeting of European finance ministers has failed to improve risk sentiment after the ministers offered no positive surprises for the markets. They agreed to grant an extra year to reach its deficit reduction target and established a new aid package for the nations struggling banks. To the disappointment of observers the meeting did not provide any progress on the activation of rescue funds needed to intervene in the bond markets.
There’s been a muted reaction to the agreement from the EU finance-minister summit to backstop the Spanish debt,” Carl Forcheski, a director at Societe Generale said. “It’s more of a buy on the rumour, sell on the news kind of effect.”
Adding to the regions woes France posted weaker than expected industrial data. Production across the nation’s industrial sector slid by 3.5% in May compared to the previous year and is down 1.9% month-on-month. The figures show that that French economy is suffering badly from the weakening Eurozone economy. Italian industrial output for May plummeted by 6.9pc
Market expectations for the Euro zone finance ministers’ meeting had not been high to begin with, but the outcome highlights a seeming lack of urgency on the part of policymakers.
Disappointing import figures out of China has also pulled on the embattled single currency as investors look to safe haven currencies such as the Dollar and Yen.
The Euro is hovering in the region of 1.228 against the Dollar with no sign that it will see improvements. We can expect the currency to slip to further lows.
In the UK, factory output increased unexpectedly in May. Production increased by 1.2% compared with a decrease of 0.8% seen in April. A statement from the Office for National Statistics said: “Feedback from businesses in the food and drink industries indicated that warm weather and increased demand due to the Diamond Jubilee were factors contributing to the increase in production. In contrast, the manufacture of pharmaceutical products & preparations industries fell by 3.9 per cent.
In 2012, the end of May bank holiday was moved to June resulting in an additional working day in May, which may have been a contributing factor to the month on month growth shown in the production and manufacturing sectors”.
The Governor of the Bank of England Sir Mervyn King said:
“The economy has basically been flat for two years and doesn’t show a great deal of signs of impending recovery. I am worried about the outlook for exports because sterling has risen over the past year and that’s going to be a challenge, and because of the state of euro area.”
A strengthening Pound is a potential obstacle to recovery as exports will end up costing more and demand will falter as a result. The best hope for the Pound is for the Euro to see some sort of turnaround and take the pressure off of the safe haven currencies of the US Dollar, Japanese Yen and Pound.
The Pound to Euro exchange rate is currently trading at 1.264
The Pound to US Dollar exchange rate is currently trading at 1.553
The Euro to Australian Dollar exchange rate is currently trading at 1.200
The Euro to US Dollar exchange rate is currently trading at 1.228
The Euro to Pound exchange rate is currently trading at 0.790