Sterling managed to force the Euro exchange rate up even higher last night, and the elusive 1.2300 was almost breached. The Pound also stretched the upper limit of the GBP/USD exchange rate a little further as Consumer Confidence achieved its highest result since June last year.
The Eurozone has already established itself as a problematic-going-on-calamitous entity within the global financial crisis, and it is for this reason that the Pound has been able to prosper in 2012. Benefitting from its position as a safe haven from the Eurozone debt crisis, the UK economy has shown growing signs of recovery lately and it seems that Wednesday’s contentious negative GDP figures have not put too much of a damper on investor confidence.
The Euro was dealt another blow as Standard & Poor’s reduced the Spanish credit rating by two notches from A to BBB+. S&P state that the Spanish economy is set to shrink and raised concerns over its banking sector’s ability to cope with added fiscal pressures. It doesn’t rain in Spain, it pours. Spanish Unemployment rose to a staggering 24.4% in the first 3 months of 2012, Retail Sales fell by 3.7% last month, and Spanish Government 10-year bond yields surpassed the crucial 6.0% level that many feel marks the difference between struggling-to-sustain and impossible-to-sustain.
One of the Eurozone’s biggest problems is that of the confluence of so many contrasting cultures across the currency bloc making it impossible to set out any kind of permanent revival strategy. A pertinent example of this European impermanence can be seen in France right now. Socialist candidate Francois Hollande is currently ahead of Nicolas Sarkozy in the French Presidential Election. Hollande, if elected, has vowed to re-negotiate the newly formed fiscal compact which carries with it potentially devastating connotations for the single currency – it seems hypocritical to expect the weaker Eurozone economies to stick to harsh austerity-led budgets if France, the Eurozone’s 2nd largest economy, is not sticking to its own set of rules.
Angela Merkel has expressed her explicit concern towards Hollande’s proposal and has categorically ruled out the possibility of any fiscal compact amendments. However, the growth-through-austerity train that Merkel has been championing looks to be running out of steam among EU leaders. Yesterday the Super Mario Brothers (Italian Prime Minister Mario Monti and ECB President Mario Draghi) spoke out against crippling cut backs and re-asserted the need for growth-orientated strategies.
The debate rumbles on.
The Euro is unlikely to draw in strength from investors whilst uncertainty and conflict are the dominating ideas emanating from the troubled 17-nation bloc.
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