Spanish Regions Face Economic Trouble
30 August, 2012
There is significant economic trouble in Spain this week, as depositors are pulling their money out of the banks, whilst the government seeks an ECB bailout. The extent of the troubles in Spain can be seen from the announcement that the autonomous region of Catalonia has asked for a bailout of 5bn euros, with most of Spain’s regions facing the same concerns. The group known as the ‘Troika’, consisting of the International Monetary Fund, the ECB and the European Commission, are also visiting Portugal this week to investigate the extent of the Government’s handling of the debt crisis. The markets are holding their breath for their announcement, but analysts are suspecting that, unlike their visit to Greece, the result will not be positive. Despite this, however, the Euro has seen significant strength against sterling this week, with rates for transferring sterling to euros dropping to a 3 week low on Tuesday. Sterling, however, managed to gain some ground yesterday, with traders reporting central bank demand for the UK currency as a leading cause of its slight rise.
However, many analysts believe that there is a strong chance the Euro will gain strength over the coming days, due to speculation the ECB will announce a bond-buying programme to assist the flagging economies of Spain and Italy. Furthermore, the Bank Of England are being noticeably quiet about the chances of any further Quantative Easing, leading investors to believe there may be a new round of economic stimulus in the near future, weakening the rates of sterling across the board. There was also concern of economic disagreements in the UK government yesterday, as Deputy PM Nick Clegg proposed plans for a new, temporary tax for higher earners. Chancellor George Osbourne, however, claimed that this idea could backfire, warning it would endanger economic recovery. If these disagreements escalate, it could see the UK economy, and by extension sterling rates, being negatively affected.
There was positive news for the US dollar yesterday, as the Commerce Department announced that the American economy had, in the second quarter, grown at an annualised pace of 1.7% from April to June, more than the 1.5% previously estimated. Any major gains in the value of the dollar were, however, limited by the fact that this was a downturn from the 2% growth seen at the start of the year. Further concern that the Federal Reserve would possibly add more stimulus to the US economy caused sterling rates to go up 0.1 percent against the dollar yesterday, managing to break away from a week-long low the previous day.
The Paralympics begin today in London today, hopefully bringing a second wave of Olympic-fuelled happiness across the nation. Make sure the coverage of the games doesn’t see you miss out on the latest news about exchange rates, and don’t forget to give your account manager at Currency Index a call if you have any upcoming requirements.
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