EUR/GBP: Worries Over Spain Hurt the Euro

In the previous European trading session, the Euro lost versus the British pound after the Spanish government revealed economic reforms which are deemed by many as the initial step before it requests for bailout from the Euro Zone’s rescue fund. The Sterling on the other hand inclined as the Final GDP data revealed that the economy by -0.4 percent in the second quarter, less than the previous estimate of -0.5 percent. In today’s European trades, the single currency is seen to extend losses versus the Pound.

A fresh round of budget cuts for 2013 was revealed by Spain yesterday, with an 8.9 percent-slash in ministry budgets, and a halt in public sector wages for a third year. Madrid expects to save 13 Billion Euros by next year, with spending down by 7.3 percent. Many analysts consider the budget presentation of Spain as the preparatory step before it asks for financial assistance from the Euro Zone’s bailout fund and the European Central Bank. For the latter to intervene, struggling economies must show their commitments to reducing their budget deficits, to be extended financial aid. But so far, Prime Minister Mariano Rajoy has been reluctant to ask from help from its Euro Zone partners.

Meanwhile, the Pound is likely to get support from the release of the UK consumer confidence data as September’s figure improved to minus 28 points. According to Nick Moon, Managing Director of Social Research at Gfk, the index “will offer some grounds for optimism to the government after such a stagnant summer.” Taking into consideration these factors, a short position for the Euro-Pound pair is recommended in today‚Äôs European exchanges.

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