EUR/GBP: German Business Confidence Remains Weak; Spain Delays Bailout Request

The Euro held on to losses versus the British pound in yesterday’s trading exchanges following a report on German Ifo Business Climate, which showed a fifth consecutive drop of the index in September. Worries over Spain and Greece likewise added pressure to the single currency. With these factors, the EUR/GBP pair is expected to extend losses into today’s European trading session.

Confidence among German businesses remained weak this month, as it unexpectedly declined to 101.4 points, the lowest level in more than 2 1/2 years. According to the Ifo Institute for Economic Research, companies are again less satisfied with their current business situation, and have expressed greater pessimism about the future.

Also, Spain is becoming the center of attention as borrowing costs hovered around 6 percent on concerns that the government is delaying a request for a sovereign bailout from the Euro Zone’s rescue fund. Such delay is making Germany lose its patience, and wanting to extract the government’s decision whether or not it needs a full-blown rescue. According to Michael Meister, Finance Spokesman for Merkel’s Christian Democratic Union, Spanish Prime Minister Mariano Rajoy “must spell out what the situation is.” His remarks came after a dispute between France and Germany as to the European Central Bank’s supervision over banks in the Euro region.

Meanwhile, the Pound is expected to gain as it is deemed by investors as a better alternative than the Euro. Demand for the safety of the Sterling is expected to increase on weak economic reports and the lack of cooperation among the European leaders as to the solutions to the debt crisis. Given these factors, a sell bias is suggested for the EUR/GBP pair in today’s European exchanges.

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