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Midi-Pyrenees News : Pound holds steady against the Euro

Precious little change to report from last week, and we ended up at 1.2040.  It was a tentative week, with the markets struggling to find anything substantial to latch on to.  Events of mild interest:

Spanish Bonds

Sighs of relief from Madrid this week with a decent bond auction, taking the pressure off for a while. Spain sold 6.61 billion Euros of government bonds which was more than its announced target, in an auction that analysts said went well.

Italian Investment

Elsewhere in Europe, Italy announced a new investment plan, comprising of 5.5 billion Euros, to help prevent any further degradation of its economy.  It is also probably an attempt at appeasing Standard and Poor's.

Dodgy Greece

After pressure from the IMF and the EU, Greece revealed a revenue-raising
scheme that involves allowing film companies and photo shoots to use ancient treasures such as the Acropolis.  Rumours that they are also flogging off islands on the cheap were denied (I made that up).  One potential stumbling block this week has been Greece’s renegotiations of its bond repayments. If these talks break down yet again then Greece is likely to have a ‘disorderly’ default as opposed to the carefully managed one that is being attempted at the moment. If that happens, the blue touch paper will be well and truly lit.

Good and bad  for UK

A mixed bag of news from 'home' this week.  The pound dropped below 1.2000 at one point this week, as a survey showed that consumer confidence in the UK fell to the lowest level for 7 years, which increased concerns over the fragile recovery and increased the chances that the Bank of England would look to increase Quantitative Easing as early as next month.  Retail sales were up 0.6 percent in December. Textiles, clothing and footwear stores were the biggest contributors to the increase. At the same time, sales in household goods stores and other stores declined.

What does all this mean?

So far this year we have seen mixed messages for the pound.  We have seen inflation in the UK coming down, and retail figures up, but on the other hand unemployment is still rising. I think next Wednesday will be important, with the release of the Bank of England Minutes and UK Q3 GDP figures.  If UK growth is very weak or negative then it will increase the likelihood of a 'double dip' recession.  If this is the case, should the Minutes point towards further QE in the UK then we could see a bout of sterling weakness.  Unless of course we get another flare up of the debt crisis in Europe.  All eyes on Greece!

This week's guess/forecast

I'm still backing the Euro to hit another brick wall, but we might have to take a hit in the short term.  I'm still looking for 1.24 in the short term, but Wednesday is key for this week.  I think we will be in the 1.19's at the end of this week.

a bientot,

Rob

If you have any questions or comments on this, or any other subject, please don’t hesitate to contact me, Rob Hesketh:

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