Last night the Credit rating agency moody downgraded 15 banks across Europe. This was widely expected in the UK following the QE announcement last week however some of the European banks was a surprise. As a result the euro weakened making it cheaper to buy with your pounds. The reason behind this is that like you and I banks have a credit score that determine how expensive it will be to borrow. As this has deteriorated those banks will have more costs to run at the same level and as a result weaken.
News from Europe over the last 24 hours includes a full estimate of how much the Spanish banks will need to weather a serious downturn of the economy and the losses in their books. The amount was upwards to €62 billion! This news also improved the costs of borrowing for key members on the bond markets. Spain’s 10-year government bond yield fell back under the 7% to 6.93% and the equivalent Italian bonds fell to 5.77%. (A rate above 7% is considered to be unsustainable, however these levels are still too high)
The other main topic in the Eurozone this week was Greece and worries subsided following the elections that took place on Sunday. Antonis Samaras has now formed a Government but the former economist will get little opportunity to savour the victory, he now has the task of pulling Greece out of a five-year recession and renegotiating a bailout deal with unwilling creditors across Europe. This is a task that will almost certainly affect exchange rates in the coming weeks. When reviewing the situation I’m sure winning the election will be seen as the easy bit.
Summary for next week
If you are in the position needing to buy euros at the moment I personally expect rates this time next week to either be slightly better or a lot worse. Why do I think this?
Well we have to remember that it is in the Europeans interest to resolve the crisis and significant steps have been made forward this week to get there. I would not be surprised to see the banks across Europe become more integrated this next week and a solution coming the week after at the beginning of July. Either way I am 100% convinced that GBPEUR rates will continue to move over 1% a day, equating to thousands of pounds of difference on the cost of a property, service or product. If you want to maximise your trade you need to know when data is expected to be released, as this allows you to make the educated decision when trying to forecast the peak of the week. This is information a currency broker can provide. If you want more information feel free to contact us directly or keep reading our blogs. We aim to update you all twice a day with breaking news and predictions for the days ahead.
Either way if you are trading in the next week a wish you the best of luck!
Have a good weekend and watch out for Germany vrs Greece this evening in the Euro 2012 competition. It should be interesting to see what happens when the fans mix….