Clash Of Ideas At EU Summit

23 November, 2012

There are concerns in the Eurozone this morning, as Angela Merkel said yesterday that she doubts an agreement can be reached on the European Union’s next budget The primary focus for today will be the current EU summit in Brussels, particularly with regards to the 2014-2020 budget meeting due to take place at 11am. There have been various clashes between the representatives at the summit, with arguments about whether or not it is justified to increase the EU’s budget during a period of austerity. One of the voices speaking against any increase is Prime Minister David Cameron, who has stated – “Clearly, at a time when we’re making difficult decisions at home over public spending, it would be quite wrong – it is quite wrong – for there to be proposals for this increased extra spending in the EU.” Mr Cameron has threatened to use the UK’s veto if the results of the meeting isn’t beneficial to the UK economy. Whilst investors aren’t expecting a solution to the Eurozone crisis to be unveiled over the course of the summit, a bad result will likely cause the value of the Euro to drop significantly. On the other hand, if the representatives announce that progress has been made, the euro will likely see a sharp rise in value.

In the UK there has been concerning stagnation in the manufacturing sector, leading a few analysts to worry that the economy may enter recession during the last quarter. This seems unlikely, however, given the boost to retail sales that the Christmas season is likely to bring. It was also announced yesterday that the average annual earnings of full-time workers in the UK rose by 1.4% to £26,500 in the year to April 2012. It was also stated, however, that with inflation rising by 3.5% over the same period of time, it resulted in earnings technically being less. This, along with the surprisingly good Spanish bond auction yesterday, has caused the value of sterling to drop slightly against the euro.

The dollar saw a day of weakness yesterday, as businesses were shut due to the Thanksgiving holiday. This resulted in the euro gaining 0.2% against the American currency. However, these fortunes are likely to be reversed today, as what is known as ‘black friday’ begins, a day when businesses across the United States traditionally move into profit, giving a large boost to the overall economy.

If you’re concerned about the outcome of the current EU summit and the effect it will have on exchange rates, please give us a call at Currency Index and we’ll make sure you aren’t caught out by any sudden market movements.