Angela Merkel was quoted on radio today saying the Eurozone must stick together. Following a tense few days for Euro rates, we have actually seen the Euro gain back some ground against both the pound and the US dollar. This is I feel a combination of investors taking profits ( you can read more on this in my post on our sister site http://www.poundsterlingforecast.com/2011/09/13/be-fearful-when-others-are-greedy-and-greedy-when-others-are-fearful/ ) and Merkel’s comments.
I have written before that despite the huge difficulties in the Eurozone there is a huge economic and political will to keep the Euro alive. If I had to put my neck on the line I think the Euro in it’s current form is doomed. But that the doomsday scenario painted is not necessarily upon us yet. We do seem to be drawing closer however and it is only right that the Eurozone economies seriously start drawing up contingency plans. With shrinking economies and ballooning budget deficits the PIIGS situation is deteriorating. The massive losses in share price of all of the banks exposed to Eurozone debt underlines the lack of confidence that these debts will be repaid. The true extent of the crisis is perhaps better reflected in these falling stocks, since when investors look to the Euro as a currency there are a number of positives. Namely high interest rates and the participation of Germany and France, as two of the world’s largest economies in the Euro project.
Looking to data for the rest of the week ahead, we have Industrial Production orders tomorrow and Unemployment change and Inflation data Thursday. Any releases out of line with expectation could cause some movements but I would expect the biggest news this week will be political fallout from on going discussions over the future of the Euro.
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