Foreign Exchange Report : Popular Party Victorious in Spanish Election, Sending Pound Euro GBP EUR Rate Lower

Published: Monday, 21 November 2011 06:33 BST - Written by Tim Boyer

STORY LINK Foreign Exchange Report : Popular Party Victorious in Spanish Election, Sending Pound Euro GBP EUR Rate Lower

The Pound Euro exchange rate (GBP EUR) is 1.1649. The Pound Dollar exchange rate (GBP USD) is 1.5742. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5799.

As expected, Spain’s centre-right Popular Party swept to election victories yesterday, displacing the ruling Socialist Party, which had held power since 2004.

Spain’s new government, led by Mariano Rajoy, faces a mammoth task in restoring the markets’ belief in the country’s ailing economy; last week saw the yields on 10-year Spanish debt rise to close to 7% - this is the level at which other Eurozone states have had to approach the EU/ECB/IMF troika for a bail-out.

With Spanish unemployment running at a dizzying rate of above 20%, Rajoy faces the seemingly impossible task of implementing stringent austerity measures whilst avoiding any significant drop-off in economic activity in the troubled Iberian state. Straight after his resounding victory, Rajoy’s first action was to attempt to manage down the expectations of the Spanish people by informing reporters that there would be ‘no miracle’ to fix the financial mess in which Spain is currently mired.

So far, the markets have responded with cautious optimism towards the Popular Party’s victory, with the Euro being well bid in early trading this week. This has seen the GBP EUR rate trade below Friday’s intraday low of 1.1646 already today, sending out a bearish signal for the pair.

Elsewhere, Asian stocks followed the pattern set by their European and US counterparts during Friday’s session, when equities markets re-opened last night. This move was partly driven by weak Japanese trade figures released overnight, which showed that Japanese exports contracted for the first time in three months last month.

The ‘risk-off’ environment may become more entrenched as the week progresses if US Congressmen fail to reach a rapid agreement on reducing the US’s massive budget deficit. This could see renewed support for the US Dollar, sending the GBP USD rate spiralling back down towards last month’s 15-month low of 1.5272.


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