EUR/GBP: Spain Under Pressure to Request for a Sovereign Bailout

In the previous European trading exchanges, the Euro gained versus the British pound by 55 pips as European Central Bank President Mario Draghi stood in defense of the central bank’s new bond-purchasing plan, after reports surfaced that German lawmakers are checking its legality. On the other hand, the Sterling advanced on signs that the economy is recovering, following a report which showed that mortgage approvals increased in August. In today’s European exchanges, the single currency is expected to sustain losses versus the Sterling as markets tend to shift their attention to debt-strapped Spain if it would eventually ask for a sovereign bailout, especially now that its Andalucia region is considering a 4.9 Billion Euro-emergency credit line from the government, a spokeswoman for the regional government told Reuters.

Germany continues to attack the bond-purchasing program of the ECB as reports emerged that German lawmakers are checking on its legality. Taking from a Bloomberg news article, Bundesbank President Jens Weidmann said in an interview with Swiss newspaper Neue Zuercher Zeitung that the ECB’s new bond-buying program could hamper the economic recovery of the Euro Zone if pressure wanes on the governments to enforce reforms.

Meanwhile, Spanish Prime Minister Mariano Rajoy is still contemplating on the conditions of the bailout terms, causing investors to become impatient. After Valencia, Murcia and Catalonia, Andalucia, the most populous of the Spanish regions, becomes the fourth region to seek financial aid from the central government. This adds more pressure to Madrid to already request for a full-blown bailout, but Rajoy remains reluctant. The shared currency is expected to remain under pressure if Spain continues to put a drag on a request for international assistance. Until it makes a request, the common currency is likely to wane versus its peers. Considering these factors, a sell bias is suggested for the EUR/GBP in today’s European trades.

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