The euphoric scenes following the announcement of the Spanish bailout disappeared quicker than you can say Euro crisis, as Investors realised that the single currencies problems are far from over.
Concerns over the upcoming Greek elections and the situation in Spain and Italy caused investors to jump ship and seek alternative safer currencies. The Spanish bailout raised worries over the nation’s ability to gain access to the bond markets and the affects the injection of cash will have on its already high debts.
Boosted by its rise against the Euro the pound also rose against the US Dollar, recovering some of its lost form.
The rise is expected to be temporary however as the UK remains vulnerable to the ill winds blowing in across the channel. Fresh economic data was released showing that the UK manufacturing sector had contracted by a surprise 0.7% in April. The bad data raises concerns that the UK’s double dip recession is set to bite harder than previously feared later in the second quarter.
“The UK’s problems are plenty but they are easier to solve than others, especially the Euro zone. In the very short term, I would expect euro/sterling to head towards 80 pence,” said Morgan Mcdonnel, head of global FX at RBC Dexia.
Due to the disappointing data growing number of observers think that it is only a matter of time before the Bank of England begins to introduce further quantitative easing, with some predicting it could begin as early as next month.
“The UK is much closer to doing more QE than the American federal reserve, which could trigger under-performance in the pound/dollar pair,” Said Chris Turner, head of currency strategy at ING.
The pound was up half a per cent against the dollar hovering around the $1.554 mark. The pound also rose to a near two-week high against a basket of currencies at 83.1, Bank of England data showed.
Morgan Stanley analysts advised selling into any rebounds in sterling against the dollar, saying they do not rule out further QE from the Bank of England, possibly next month.
“The UK remains highly levered to a rapidly slowing Eurozone via both trade and banking links. Furthermore, lending rates and credit spreads within the UK are moving higher despite the low-level of the base rate, essentially tightening monetary conditions in the UK,” they said in a note to clients.
If the bank does decide to implement further QE measures then the pound is expected to weaken slightly but nowhere near the levels it experienced at the beginning of the financial crisis.
The Pound to Euro exchange rate is currently trading at 1.247
The Pound to US Dollar exchange rate is currently trading at 1.554
The Euro to Australian Dollar exchange rate is currently trading at 1.258
The Euro to US Dollar exchange rate is currently trading at 1.246
The Euro to Pound exchange rate is currently trading at 0.801
The US Dollar to Japanese Yen exchange rate is currently trading at 79.500
Comments are closed.