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Has the pendulum swung too far for euro strength? Thursday will be key…
One of the most common questions I am asked is why is the euro so strong? Daily we hear new bad news from Europe concerning the economies using the euro. Lower growth forecasts, rising unemployment rates and uncertainty as to exactly how all of these problems will be dealt with, receive much media attention everyday.
The reasons for euro strength are quite simply the fact that there is a belief the problems will be worked out. The eurozone as a whole is a massive economy and investors are confident that in the future conditions will pick up and the economies will return to growth. This belief has been epitomised by Mario Draghi, President of the ECB (European Central Bank) who has declared everything will be done to save the euro.
That ‘belief’ came back to the market 7 months ago when he made a speech in London using carefully chosen words. The euro which had been in free fall against all currencies quickly found footing and the ‘belief’ became self fulfilling as lowering bond yields for Spain and Italy encouraged more investment into Europe.
This Thursday is shaping up to be a very interesting day and may be the day that finally the pendulum of euro strength begins to swing in the other direction. Worrying unemployment number in Spain (getting worse) suggest much worse could soon be on the cards for the euro. The Interest rate decision Thursday is when we may finally see confidence falling for the euro. Investors patient for the last 7 months may soon start to become concerned at the lack of progress and the deteriorating problems.
It is unlikely the euro will break up in my opinion, in the short term at least. However the rise of anti austerity and extreme parties in politics is a dangerous trend that will soon surely manifest in weakness for the euro.
If you are planning a transaction involving the euro keeping up to date with the latest news could be key. As specialist currency brokers we offer guidance on the best time to transact currency exchanges, plus a commercial rate when you do so. For more information on how using our services works (even if it is just a one-off) please contact me Jonny directly on [email protected]
2013-04-30 10:52:28
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