Thanks Mervyn and George…

15 June, 2012

Tom Arnold

The Pound took a major hit last night with the annual Mansion House speeches by both the Chancellor of the Exchequer and the Governor of the Bank of England, providing a gloomy outlook for the UK economy, and announcing a combined initiative to improve bank lending and liquidity.

“EUR/GBP is trading higher after the governor of the Bank of England, Mervyn King, last night announced that the bank and the Treasury are working together on a “funding for lending‟ scheme that would provide funding to banks for an extended period of several years in exchange for collateral and a commitment to lend to businesses”, wrote Sverre Holbek, senior analyst at Danske Bank.

An initiative like this will help the UK economy, and certainly the growth providing private sector, but is not such good news for the Pound. Any sign of weakness and of providing extra liquidity, i.e. putting more Sterling into the system, is seen as dilution of the currency and can only lead to weakness.

The Pound is managing to hold its own against the US Dollar, but this is seen as more to do with the market correcting away from the US Dollar, and the Dollar is likewise being tested by the Euro as well.

All this Sterling bad news is offset slightly by the imminent Greek election, which is very much in the balance and could lead, as discussed in previous reports to a Euro breakup or at the very least a Greek exit from the Euro.

Focus on Euro 2012

Italy 1 – Croatia 1
Ireland 0 – Spain 4

Yesterday’s games at the European Championships, were in stark contrast to each other, with a closely fought battle between Italy and Croatia ending in parity, while the Spanish annihilated the Irish – the Irish Times headline read: “Murder on the Gdansk Floor”. The Irish become the first team to exit the tournament, and leave having shown similar strength to their economy, although at least the Spanish gave their unhappy citizens something to smile about, while their depressing financial situation smoulders on. Even if you were surprised by the Croatian’s result against the Italians, I’m sure you won’t be surprised to find out that the Croatian Kuna, is another of those slightly more exotic currencies available from Currency Index – give us a call if you have a requirements for money transfers to Croatia.