Pound To Euro Exchange Rate Threatens To Break Higher Following Weak German Business Confidence Survey And Increased Fears Of A Spanish Default

September 24, 2012 - Written by Toni Johnson

STORY LINK Pound To Euro Exchange Rate Threatens To Break Higher Following Weak German Business Confidence Survey And Increased Fears Of A Spanish Default

The market went easy on the euro during the low-volume Summer period – traders were away from their desks, (as were politicians), and the babble regarding the region’s seemingly impending full-blown debt crisis eased. This afforded the GBP EUR exchange rate the opportunity to recover its poise and it took that opportunity, dipping to 1.2258 at the start of June. That levels remains as a 4 ½ month low for the pair and it appears possible that it may be some time before it is re-visited, because the bad news stories are now mounting for the eurozone. Mariano Rajoy, the incumbent Spanish Prime Minister, set the cat amongst the pigeons over the weekend when he openly questioned whether his troubled nation should accept EU-sanctioned bail-out funding. It looks increasingly likely that the Iberian state will not be able to keep its head above water without the emergency funding, so in effect Rajoy was suggesting that a disorderly debt default might be his country’s best option.

Meanwhile, this morning’s German IFO Business Climate survey increased concerns that the Teutonic giant is beginning to wilt under the strain of maintaining its debt-ridden peripheral cousins. The influential survey showed that business confidence had contracted for the fifth month in succession. Without a German economy which is performing at least creditably, the future would appear bleak for the euroland.

As news breaks that euozone policymakers are finding it ‘more difficult than ever’ to agree on medium term budget, ahead of next month’s summit, matters appear to be conspiring against the single currency. July’s high of 1.2894 stands as GBP EUR’s highest level since October 2008. However, if the fundamentals continue to suggest that Europe is in trouble, the potential exists that this could be eclipsed before the end of 2012.

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