Euro Gains on Spanish Bailout Potential

Market Snapshot

The table below shows the percentage movement of exchange rates yesterday, along with the extra currency you could have bought if buying with £200,000.

This report will take a look at th e cost of buying foreign currency and factors that could affect your currency transfer as detailed below:

       Spain and the New Great Bailout

       Weak UK Construction

       GBP USD

       AUD Focus

Spain and the New Great Bailout

In a twist of events, Spain is reported to be ready to accept a Euro zone bailout although Germany is trying to slow things down. Spain had appeared to be stalling over these last few weeks but the change has happened so quickly that a bailout could happen as soon as next weekend. There is now a great deal of uncertainty as to how and when aid for Spain will come and whether it will be a bailout or not. With this very big unknown there should be some volatile days ahead affecting money transfers. The verdict appears to be that if Spanish borrowing costs come down to a more manageable level then that should favour the Euro. It is for this reason that GBP EUR has room to slide lower to the 1.20/1.21 levels.

Tomorrow morning sees the Spanish 5 year bond auction ahead of the European Central Bank (ECB) meeting which will set the tone for what should be a very eventful day! The markets are of course awaiting the Bank of England and ECB decisions – Although no change is expected, any comments from Mario Draghi should make for interesting listening as they often have a direct impact on the Euro.

Weak UK Construction

UK Purchasing Managers Index (PMI) for the construction sector came in worse than expected and painted a gloomy picture. With a lack of new UK projects and the fact that confidence is the lowest since 2008, when the UK slipped into recession, then this weakness looks set to continue for the rest of the year. The data follows weaker manufacturing PMI data from Monday highlighting that this sector is also contracting and the UK economic recovery is fragile at best! Until the UK can demonstrate economic growth in these sectors then sterling is going to remain under pressure and the prospect of even more Quantitative Easing will be there again from November.

UK PMI for the services sector is released this morning at 09:30. Expectation is to see expansion in the sector although not as high as the previous month. A positive number would be welcome today which may just help support sterling after two consecutive poor days.

GBP USD

With little in the way of US data releases on Tuesday eyes now move to US mortgage applications, employment data and non-manufacturing PMI later this afternoon which should be enough to see some volatility for the US dollar. Should you need to exchange foreign currency rates for GBP USD are still trading at attractive levels and currently close to a 4 month high.

AUD Focus

After the Reserve Bank of Australia (RBA) cut interest rates to 3.25% yesterday, the pound saw excellent gains against the Australian dollar. Considering we have seen three cuts from the RBA in the last six months, it does suggest that the Aussie slowdown may be happening faster than expected and Australia is having to act fast to compensate. BREAKING NEWS – Australia’s trade deficit came in this morning at its widest for 3 ½ years so it’s no surprise the dollar is weakening further. With new uncertainty in the Eurozone and the Chinese slowdown then there is a good chance that the RBA will have to cut interest rates again later this year, which is likely to keep the dollar on the back foot. Rates of 1.59/1.60 should now be in sight.

EU PMI data and retail sales are also released this morning with a small improvement expected. However the real focus today is going to be on any developments surrounding Spain which has the potential to be a huge market driver.       To discuss how these issues may affect your requirement call us on 0800 328 5884 or 01494 725 353 or e-mail me directly jll@currencies.co.uk