Wednseday has witnessed a volatile day in the markets for the GBP/EUR currency pair. We have seen the euro fight back against sterling since the start of the week, as the results of Sunday’s Greek elections gave the single currency a timely boost. It wasn’t long ago that analysts were asking when, not if GBP would hit 1.30 against the euro and those same analysts are now wondering whether we will even see sterling break back through 1.25, based on current market conditions.
This week has also seen key data released in the UK, not least yesterdays inflation figures that showed a drop to 2.8% and indicate that a further round of Quantitative Easing is now highly likely over the coming months. In fact today we saw the release of last months Bank of England minutes, which confirmed that four of the nine members actually voted in favour of QE at the last meeting. If we do see another 50bn injected into the UK economy as some are predicting, then I certainly think we will see GBP weaken off against the EUR in the short-term, as investors will see it as a sign of our economy faultering.
Today has also seen the release of the latest UK unemployment figures, which certainly made for better reading. They showed a fall in unemployment of 51,000 in the three months prior to April and these figures may well of kept the pound from falling off further agaisnst its European counterpart.
Personally I believe any long-term euro stability will only come about if we see a real fiscal solution put in place, to counter the high levels of debt running throughout the EU region. This debt and the on-going struggle to balance austerity with economic growth, particularly in Spain and Italy, still hold the most concern for EU and global leaders.
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