The Pound has declined against the Euro this morning from daily highs of around 1.169, to daily lows of 1.163, consolidating around 1.164. The UK banking sector is under intense scrutiny with predictions that VAT contributions, energy prices and import prices are all set to decline as we make the transition from 2011 to the fabled ‘2012’. With unemployment at a 15-year high of 8.3% and serious concern that the Bank of England may be planning further Quantitative Easing measures the Pound faces a tough battle to avoid negative growth over the coming months.
The Eurozone has enough widely documented problems of its own with 10-year bonds yielding close to 7.0% in Italy, Greece and Spain. These 3 countries have all undergone parliamentary upheavals over the past week and the latest one – Mariano Rajoy’s election victory in Spain – was actually democratic. Although Rajoy is at the helm of a ship in stormy waters; a stagnant economy; 23% unemployment; tough austerity measures; and a public debt figure stretching to 67% of GDP; his strong majority victory seems to have won the trust of investors – at least momentarily anyway.
Rajoy enjoyed the biggest majority of a Spanish election in almost 30 years, with his People’s Party winning 186 of the 350 seats in Parliament deposing the Socialists from their 8 years of power. Rajoy remains under no illusion of the task at hand commenting that: “Hard times lie ahead… We are going to govern the most delicate situation Spain has faced in 30 years.”
Rajoy’s pragmatic outlook on the tough timescale of his planned Spanish resurgence coupled with comments from Barclays Capital in London that his hard work must be complimented by bolder steps from the European Central Bank in order to contain the Spanish sovereign debt problem, suggest that confidence in the Euro may remain a short-lived venture.
The gains made this morning by the Euro against the Pound may be reversed soon if the reaction to new Prime Minister’s in Greece and Italy is anything to go by.
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