Pound falls to 5 month low

23 October, 2012

Sterling fell to a 5 – ½ month low yesterday against the Euro, in further indications that we’re through the metaphorical eye of the storm as far as the Eurozone crisis goes. As people are no doubt aware, over the past few years, any positive news for the European economy has caused a sudden boost in the Euro’s value, no matter how minor the news is. In this case, election success for the Spanish Prime Minister has proved beneficial. A victory in his home province of Galicia is seen by many as a vote of confidence in his pro-austerity government, increasing the chances of Spain accepting a bailout in the near future. However, any gains have been muted significantly by the perceived delay in asking for this bailout. It isn’t all sunshine for the Eurozone however. As pointed out last week, there are fears that the German economy may contract in the near future, and yesterday the German central bank agreed that this seemed likely before the end of the year. It remains to be seen how the workhorse of the EU will be affected by this shrink, and how it will affect the value of the euro.

Investors are eagerly awaiting a speech by Bank Of England governor Sir Mervyn King later today, with many anticipating that he will announce his opinions on further QE in the near future. Whilst analysts see more QE as inevitable by the end of the year, any fears of it were temporarily put on hold by positive jobs data from the UK last week. Interestingly, the Monetary Policy Committee are currently on a trip to Wales to conduct a survey of the state of the economy there, for the first time in 11 years. With an announcement due in 48 hours to see if the UK is officially out of recession, this trip could prove some vital figures.

The final US presidential debate yesterday focused on the state of the American economy, which has been seeing growth, but slower than expected. Some analysts claim that jobless figures are being cut by the booming oil and gas industry, but with both candidates clashing significantly over the economy, and with the election too close to call, investors are holding their breath on the dollar, as it seems hard to consider the long-term consequences of the election. However, the sudden surge in the Euro’s value has caused the dollar to weaken, allowing the transfer rates on sterling to dollar to remain at a similar level.

With the effect of upcoming elections in Europe and America affecting the world’s strongest economies, it stands to reason that we should see some fluctuation in the exchange rates. If you have any requirements for currency exchange coming up, make sure you give Currency Index a call to ensure you don’t get caught out.