Sterling eroded some early loses during Wednesday’s trading and had actually gained almost a quater of a cent against the euro by close of European trading. GBP has been losing ground against its euro counterpart all week and today’s early loses continued that trend. These loses followed this morning’s particulalry negative Autumn statement by chancellor George Osbourne, who indicated that the UK economy was likely to contract by 0.1% in 2012, compared to his original predictaion of 1% growth. This was quickly jumped on by Labour leaders who indicated his credibility lay “in tatters” and his announcement that UK austerity measures will now be extened to 2018 has done little to help eliviate these fears.
Despite this negative news for the UK economy the Pound has actually made some inroads against the euro this afternoon, moving back up into the 1.23’s. The reason for this could be attributed to a report today suggesting the eurozone’s economy would continue to contract in the last quarter of 2012 and the early part of next year. This would mean an on-going recesion and poor growth prospects, potentially for much of next year. The markets seem to have reacted to this as EUR negative, although I do believe a move towards 1.20 on GBP/EUR is more likely than a move back through 1.25 over the coming months.
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