EUR/GBP: Euro Zone Optimism Believed to Wane

In the previous European trading session, the Euro declined versus the British pound as recent enthusiasm for the former waned, following comments from German Chancellor Angela Merkel supporting the statements of European Central Bank President Mario Draghi. As the European leaders prepare to meet this week to discuss ways to overcome the debt crisis, the single currency is seen to wane in today’s European exchanges.

Worries over the future of the Euro Zone are the cause of Italy’s rising bond yields, as said by Italian Prime Minister Mario Monti during his speech on economic growth in Rimini. Monti said the decline in yields could have helped the Italian economy to recover, but “for a number of reasons that were not so much about Italy but due to lower confidence toward a problem-free continuation of the Euro,” getting back on track did not happen for the third largest economy in the Euro region. Meanwhile, smaller states in the region that have kept their top credit ratings quarreled over the future of the bloc. Some expressed their commitment in keeping the bloc together, while others are already preparing for the eventuality of a Euro Zone breakup. Markets are still expecting for decisive actions coming from the ECB and the European leaders and the continued lack of actions from both would cause market confidence to weaken.

In the UK, recent economic data have given a boost to the Pound, indicating that the economic slump could be less pronounced than estimated. Retail sales unexpectedly increased and unemployment dropped to 8 percent in the second quarter of this year, with the number of people claiming for jobless-related benefits dropping by 5,900 in July. Given Euro Zone’s still depressing economic condition, a short position for the EURGBP pair is recommended in today’s European trades.

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