EUR/GBP: Delay in Spain’s Bailout Request Drives Euro Down

In the previous European trading session, the Euro lost against the British pound as pressure is piling up on Spain to request for a sovereign bailout and trigger the new bond-purchasing program of the European Central Bank to help lower the country’s borrowing costs. This has led investors to seek refuge from the Sterling amidst risks of a delay to ask for a bailout by debt-laden Spain.

In today’s European exchanges, the single currency is expected to decline as a postponement in Spain’s request for financial assistance to fix its financial problems is seen to only worsen the debt crisis. The Euro Zone’s fourth largest economy is under pressure to request for rescue aid, but Deputy Prime Minister Soraya Saenz de Santamaria said that the government is still contemplating on the stipulations of the bailout, resulting to some investors becoming impatient. If Spain eventually makes a request, some analysts still think that it would not be that much of a positive sign for the Euro Zone as the imposition of painful spending cuts is expected to get in the way. Lane Newman, Director of Foreign Exchange Trading, was quoted in Reuters as saying: “You are looking at a Spanish economy that has 25 percent unemployment and a huge overhang of residential mortgages. Even if you write a lot of those down, you are still talking about fiscal austerity so you can’t grow your way out of arguably a recession.”

Amidst the headwinds faced by the European region, the Pound is seen to strengthen as demand for safe haven currencies is projected to increase. With risks to the Euro Zone economy still lingering, the EUR/GBP is seen to decline. As such, a sell bias is recommended in today’s European trades.

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