EUR/GBP: Euro Slips Versus the Pound

In yesterday’s European trading session, the Euro lost versus the Great British pound as exports slowed down in July, increasing chances for a cut in interest rates by the European Central Bank before this year closes. Yesterday, the export data showed a contraction of 0.2 percent in the second quarter on a year-on-year basis, reflecting the increasing risks of the Euro Zone sliding into recession in the third quarter.

According to Howard Archer, Economist at IHS Global Insight, “the sharply increased Euro Zone traded goods surplus for July masks some worrying developments.” He then added that increasing concerns over a slower global growth due to the appreciable drop in Euro Zone exports in July is weighing down on foreign demand for the Euro Zone. Thus, the ECB is likely to cut interest rates to 0.50 percent in the fourth quarter with such move highly possible in October.

Today the German ZEW Economic Sentiment for September is slated for release and is expected to improve to -19.2 points, after its decline to -25.5 points in August. However, considering that confidence still remains in the negative region which reflects investors’ pessimism, the single currency is likely to weaken. Adding to this, recent polls show that most Germans are against the Euro, and French support for the shared currency is deteriorating. According to a poll published by German newspaper Die Welt, and as reported in Reuters, 65 percent of Germans think that they would be better off without the Euro, while 49 percent of the Germans believe that their country would be better off if it was not part of the European Union. In France, a poll published by French Daily Le Figaro showed that 65 percent opposed ditching the Euro, while 64 percent would reject the Maastricht treaty that led to the creation of the Euro, if they had to vote on it. With confidence towards the Euro Zone already deteriorating, the shared currency is expected to drop versus the Pound, making sell a viable position in today’s European exchanges.

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