11.28.11

EUR falls for the 4th Week, but GBP grows

The European Union’s financial crisis continues to be incredibly strong, having a very powerful impact upon the Euro which has now dropped for the 4th week in a row. The European currency decreased especially against safe-haven currencies such as the Japanese Yen or the US Dollar. As well, based on the fact that even the safe-haven currencies are weak at the moment, it seems that the Euro has also fallen against the Great Britain Pound which seems to be the most powerful European currency at the moment.

Moreover, as there are no signs that the European crisis is to end in the near future, the Euro is likely to continue to fall in the near future. The Italian borrowing costs have reached the highest level since 1997, which has once more reinforced the concerns related to the debt crisis. As far as the analysts see it, the spreading of the crisis is now no longer limited to the peripheral economies. The trading sentiment has also been affected by the fact that Portugal’s and Hungary’s credit ratings have been downgraded. It is recently that even Belgium’s credit rating has been downgraded from AA+ to AA with a negative outlook by Standard & Poor’s. Concerning this decision, the rating agency has stated the following thing: “In our opinion, protracted political uncertainty remains a risk to its creditworthiness, in particular given i) the likely slowdown in economic growth we anticipate for 2012, ii) increasingly difficult financial market conditions affecting most of the Eurozone governments and iii) a high level of government debt and its rollover ratio and contingent liabilities related to the financial sector.”

The lack of news regarding the Eurozone is now considered to be bad news for the traders. The only good piece of information released recently had to do with Germany and the improvement of the German business climate, but that is definitely not enough as to swipe away all the concerns.

On the other hand, the Great Britain Pound has had a good week, closing at a higher value against most of its major counterparts, including the Japanese Yen, the Euro and the Swiss Franc, but falling against the US Dollar. This is the result of the sentiment which makes traders consider the Pound a safe alternative to the Euro. This is also related to the good piece of news related to the fact that the UK stocks have grown for the first time in the last 10 sessions. Moreover, the FTSE 100 Index has grown by 0.7 percent. Also, the yield on the gilts maturing in 10 years has grown by 14 basis points, reaching the value of 2.30 percent. However, the minutes released by the Bank of England have shown that the monetary policy adopted for the period to come is rather dovish, as the value of the interest rates is going to be maintained at the record low value of 0.5 percent and the asset purchase program is to be maintained at the £275 level. Concerning this point, there are some policy makers who have suggested an additional stimulus which is to help the economy during this difficult period, when things seem to be faltering.

Comments are closed.