You would have expected Sterling to suffer against most majors including the Euro yesterday if you looked at it at face value. The BofE minutes were released showing even hawks Spencer Dale and Martin Weale retracted calls for a rate hike as rates were kept on hold, 9-0 against. Furthermore we saw a rise in unemployment to 7.9%.
Although Sterling lost in early morning before bouncing back in the afternoon, performing particularly well against the Dollar (due to a downgrade of US growth forecasts) and making modest gains against the Single Currency. My argument for these gains would be the dissapointing nature of the Merkel-Sarkozy meeting. The plan to set up a new European economic governing body is not by any means bad news, but as it is so long term it can only be interpreted as dissapointing as the short term threat of Sovereign debt was not addressed.
Although this has been spoken about numerous times there has not been a feasible solution mooted in my opinion. Whether or not the common Euro bond is the answer is debatable but certainly something I am in favour of, if France and Germany are truly serious about the long term viability of the serious currency.
Will there ever be a long term solution for the Euro? In my opinion it is more likely that both Merkel and Sarkozy will continue ‘wishy-washy’ policies, until pressure mounts once more and emergency plans such as bailouts will once again have to be called upon. Unfortunately it seems the political nature of positioning yourself away from necessary controversy lends its hand more to emergency short term action as opposed to long term prevention.
To put it frankly I can see more weakness from the Euro moving forward on this currency pair, even though the world’s best psycic now cannot see far enough in the future to when the UK are likely to raise interest rates. If you have a requirement and are unsure when to push forward, feel free to get in touch with the author directly [email protected]