EUR/GBP: Worries over a Deepening UK Recession to Hurt the Pound

The Euro gained versus the Great British pound by 60 pips in the previous European trading session as measures aimed at triggering economic growth in the UK could not have been sufficient to pull the nation’s economy out of recession. Manufacturing and services activity in July contracted, a possible indication that the nation could dig deeper into recession. In today’s European trading exchanges, the single currency is expected to extend its wins versus the Sterling as investors look ahead to September for the possible action of the European Central Bank to help lower high borrowing costs in Spain and Italy.

Last week, the central bank disappointed the markets when it failed to detail actions to boost its pledge to preserve the Euro, but initial frustrations seemed to have already faded as investors appear to have contemplated on where the ECB’s moves are gearing toward. Hiroshi Maeba, Head of FX Trading Japan for UBS in Tokyo said: “When you think about the fact that something positive will probably materialize even if it takes some time, the Euro could see a bit of a rebound,” pertaining to prospective ECB measures.

In the UK, demand for homes is seen to continue to drop on worries about the European debt crisis and a deepening recession in the UK. Last week, the Bank of England and the government started their Funding for Lending program aimed to boost credit to households and companies and incite economic growth. Projections for inflation this year and in 2013 are also expected to be lowered by the central bank, as well as its 2012 outlook for the UK economy. With economic growth projections likely to be weak, the Pound is deemed to suffer, making long a favorable position for the EURGBP pair in today’s European exchanges.


Article by AlgosysFx Forex Trading Solutions