12.08.11

Effects of the European Crisis on the EUR, GBP and CHF

The European crisis continues to affect the entire world, especially as the disputes between France and Germany do not seem to get to an end. The two countries have different perspectives upon the way in which the sovereign debt crisis in Europe should be solved and it is likely that we are not to make any mistake by saying that the financial crisis and the decrease of the Euro is not to get to an end unless the two countries find a common solution.

The problem these countries need to solve is that of whether they should share debts amongst the Eurozone states or to simply impose austerity measures upon the countries which are already faced with financial issues. The fact is that, unless they find a solution to this problem, the Euro will continue to remain in danger. The Euro has had a difficult week due to these events and it continues to trade influenced by concerns. Moreover, the pressure continues to grow every single minute as traders are impatiently waiting to see whether Standard & Poor’s is going to downgrade 15 of the 17 European countries. Of course, this would lead to a great decrease of the Euro and would have serious consequences upon the global economy. The Euro has been influenced by the lack of optimism in the Eurozone, but also by the decrease of the risk sentiment. All these elements have caused the European currency to fall against most of its major counterparts, except the Great Britain Pound.

As a matter of fact, the Great Britain Pound has had quite a bad week, falling against most of its major counterparts due to the fact that the country’s fundamentals are rather negative. The fact is that the UK economy might be slowing down probably due to the additional easing which has been performed by the country’s central bank. All the fundamentals show negative figures. The UK retail sales have fallen by 1.6 percent on a year-over-year basis during the month of November. Also, the Halifax house price index has decreased by 0.9 percent during the month of November, after the previous decline by 1.2 percent which has been registered during the previous month. On the other hand, the manufacturing production is expected to fall by 0.1 percent and the industrial production is expected to decrease by 0.3 percent as well. If we are to take a closer look at the situation of the GBP at the moment, we are to understand that if traders are no longer to consider the currency a safe-haven solution for the Eurozone, the currency would be likely to fall a lot.

The Swiss Franc has also had a bad week due to some of its fundamental factors. The consumer prices decreased by 0.2 percent during the last month, causing traders to fear that the SNB will intervene once more in the evolution of the currency. However, it is expected for the report tomorrow to indicate the fact that the unemployment rate has increased by 0.1 percentage point, reaching the value of 3.1 percent. These elements which indicate the slowdown of the Swiss economy may be seen by the SNB as signs which point out to the fact that the CHF continues to be too strong and this may lead to a new intervention on behalf of the SNB.

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