EUR/GBP: Rajoy: Bailout Request Not Imminent

In yesterday’s European trading session, the Euro gained versus the British pound after construction activity in the UK in September remained in the contraction territory, with output and new business levels declined since the previous month, according to Markit. Meanwhile, the single currency got support from news that Spain is getting ready to request for a bailout. In today’s trades, the EUR/GBP is likely decline as Spain denied news that it is closer to asking for financial assistance from the Euro Zone rescue fund.

Yesterday, Prime Minister Mariano Rajoy said that a bailout request was not imminent, and that the Madrid has already agreed with the leaders of the regions regarding fiscal unity. Spain has been under pressure to request for financial assistance, but the central government hesitated as it is more concerned of the painful austerity conditions to be imposed on the debt-laden country. A request for bailout is seen to be positive for Spain and the Euro area because it would trigger the new bond-purchasing program of the European Central Bank that could drive down borrowing costs. A move away from this is deemed to pull down the shared currency. Today, the retail sales figure is seen to hurt the common currency as the high rate of unemployment and lower wages, are likely to erode the income of consumers.

For the Pound, it is seen to benefit as investors see it as a better alternative than the Euro. Today, the UK Services PMI is set for release and another expansion in Britain’s services sector is expected to support the Sterling in today’s trades. Thus, a short position is deemed a viable position for the EUR/GBP pair in today‚Äôs trading session.

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