EUR/GBP: Euro Falls as Markets Remain Pessimistic

In the previous European trading exchanges, the Euro gained versus the Great British pound as Bank of England Deputy Governor Charles Bean appeared to have dampened optimism towards the UK economy when he warned against being too optimistic, following the GDP data in the third quarter. In today’s European trades, the single currency is seen to give up gains in favor of the Pound as Spanish and Greek problems are seen to weigh on the shared currency.

The latest release of Spain’s jobless rate shows a worsening recession in the country as it hit a new record-high of 25 percent. Apart from the GDP data showing that Spain’s economy contracted for a fifth straight quarter, the unemployment rate adds pressure to Spanish Prime Minister Mariano Rajoy to seek for a bailout from the European Stability Mechanism, the Euro Zone’s bailout fund. The European Central Bank is also seen to come under pressure to reduce the benchmark interest rate to suppress the threat of the debt crisis spreading to other economies. Adding to the foregoing is also the want of agreement between the Greek government and the troika officials over the austerity measures required for the next loan tranche to flow into Greece. The Hellenic Republic needs funds by November 18, otherwise it would run out of cash.

In the UK, the Bank of England is set to meet on November 8 to discuss whether or not to expand quantitative easing. But the policy makers are expected to maintain a wait-and-see approach on expanding monetary stimulus as Britain’s economy recovered from a double-dip recession in the third quarter. Considering all these factors, a short position for the EUR/GBP pair is deemed to be a better choice in today’s European trades.

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