What a difference a weekend can make!
The Pound has rallied against the euro during Tuesdays trading, with events in Cyprus once again taking centre stage. We came back on Monday morning to find the markets in disarray, following an announcement by the Cypriot government that they planned to apply a ‘bank levy’ charge on all foreign and domestic imports. This means that anyone who holds a bank account in Cyprus is liable to pay a hefty fee, which will be relative to the amount of savings they have. Needless to say this has not gone down well with those involved and there has already been a number of public protests against the scheme.
The markets immediately panicked and GBP rose sharply against the EUR yesterday morning off the back of this news. Since then we have heard various reports and potential delays in a decision, with news surfacing this afternoon that the Cypriot Finance Minister has offered his resignation. If this report is confirmed it will only reinforce fears that a potential uncomfortable decision has already been made and the current delay is nothing more than a smokescreen, whilst the relative parties get their PR protocols in order. This is a very cynical viewpoint I admit but the recent history in Europe suggests it may well be accurate and if true will reinforce my belief that regardless of the reports we read, the eurozone has a long way to go before it can truly say that it is finally on the road to economic recovery.
Personally I expect this news to hit the eurozone and the EUR hard in the short-term, unless their is a major turnaround by Cypriot officials. However, with the UK budget out tomorrow followed by UK retail sales figures on Thursday, it may not be long until the UK economy is causing investors headaches and the Pound could come under pressure once again.
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