In the previous European trading session, the Euro lost against the Great British pound as manufacturing and services activity in the Euro Zone contracted in September, despite the European Central Bank’s bond-buying plans, adding pressure to the central bank to do more to encourage economy growth in the currency union. Disappointing news from Greece of the leaders’ unsuccessful attempt to agree on spending cuts, likewise directed the movement of the single currency downwards. Meanwhile, the Pound was supported by Bank of England Governor Mervyn King’s remarks that economic growth in the UK economy is on its way.
Yesterday, Spain was able to sell 10-year bonds with yields falling to their lowest level since January. However, it failed to boost the shared currency as the Euro Zone PMI figures showed contraction, giving rise to concerns that recession in the region is deepening. While Germany enjoyed better manufacturing and services data, France’s PMI data came as a disappointment, causing investors to seek refuge from safer assets. Some analysts however, believe that the Euro’s losses could be limited by the ECB’s plan for bond-market intervention. But news that Germany plans to thin out proposals over the central bank’s supervision over Euro Zone banks, is deemed to stand as an impediment for the same plan of the ECB.
Also seen to add pressure to the common currency is the lack of progress in Greece regarding talks about spending cuts required by its international lenders. The Greek government continues to struggle over spending reductions needed to be imposed to receive another tranche of bailout funds from the troika, as Prime Minister Antonis Samaras failed to reach an agreement with Pasok leader Evangelos Venizelos and Democratic Left leader Fotis Kouvelis. Samaras received a third refusal from the two leaders on the 11.5 Billion Euros worth of budget cuts in order to receive international assistance. The said package is necessary to permit the release of the next tranche of the rescue aid, and keep the indebted country in the Euro Zone. With the outlook for the Euro region’s economy getting dour, the Euro is likely to go down. Thus, a short position for the EUR/GBP pair is recommended in today’s trading exchanges.
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