This weekend the announcement came that the cynics amongst us had been predicting for months and even the optimistic had accepted was imminent. 100 billion euro has been made available for a Spanish bailout, should the countries flailing economy need it. The announcement saw some much needed confidence return to the single currency and the euro made early gains against a basket of currencies, during Monday morning’s trading.
The euro has been struggling of late, particularly against the USD, as the regions woes continue to leave investors bereft of confidence. It has struggled to fight against the greenbacks reputation as a ‘safe haven’ currency (due to the fact the Dollar holds its value better than other currencies in times of global unrest) and due to this EUR/USD levels have been trading near a 52 week low for some time. We did see some relief this morning but any short-term gains were quickly eroded and in fact at time of writing we have seen some USD strength.
GBP/EUR levels also spiked off the back of the announcement and even moved below 1.23, with the single currency showing signs of a genuine fight-back. However, once again the early morning strength was quickly erased and at time of writing GBP/EUR levels were back up around 1.24 and holding firm.
Personally I believe investors have ‘heard it all before’ when it comes to bailout packages and only need to look to Greece as an on-going example of the additional problems they can create. In my opinion 100 billion EUR is not enough to secure Spain’s economic future within the eurozone. With Cyprus now looking as if it will be the next country to request a bailout and with Greece’s political future no closer to being resolved, I still feel there are many dark days ahead for the euro. However, any confidence in our own economies ability to recover during 2012 are also fading, as UK growth forecasts are cut and further monetary stimulus (Quantitative Easing) over the coming months becomes increasingly likely.
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