CAN SPAIN GET TO GRIPS WITH ITS BLOATED BANKING SECTOR?

The pound has hit 1.25 against the euro this past week, its highest rate since Oct 2008, as Spain struggles to get to grips with its banking sector and Greece contemplates a euro exit. So what next for the continent in crisis, and the exchange rate?

Here is my latest update of the British pound to euro exchange rate, covering the 8th to 15th May 2012. This is intended as a brief guide to what’s affected the exchange rate this past week as well as what might happen next, to help you decide if now’s the best time for you to change currencies.

This Past Week

It looks as though the Eurozone debt crisis is escalating! The UK pound hit its highest point against the euro since 2008 this week (at 1.2540) as speculation Greece might exit the euro inside weeks gripped the market, while Spain failed to put its banking sector to rights.

The good news is that Europe has avoided falling into official recession, but while the political outlook looks so uncertain that is unlikely to aid the euro.

Spain’s Banking Headache

In Spain, the problem is that the banking sector is struggling to get to grips with the billions in bad loans it’s suffered since the housing crash in 2008.

This past week alone, Bankia (the 4th biggest bank in Spain according to assets, and itself the product of a merger of seven illiquid cajas) was nationalised, while 4 other cajas are also looking at joining forces.

This process should prevent Spain’s banks going bankrupt (which would obviously be disastrous for the public finances) but it fails to deal with the underlying problem of bad debt. The markets see this, which is why the euro has weakened in spite of Spain’s action.

In the medium term, this is likely to remain a problem too.

Is A Grexit (Greek Exit) Coming?

In Greece meanwhile, the sudden dominance of anti-euro parties on the political front means we’re facing the increasingly real possibility that Greece will exit the euro.

This accounts in large part for the decline in the euro, as the markets attempt to anticipate such an outcome by selling assets in euros and putting them in locations believed to be safer, such as the UK pound and US dollar.

The problem of course is that a euro exit is completely unprecedented, and has the potential to spark a domino effect across Europe in which all of Europe’s banks become unstuck, while other countries in the grip of austerity such as Ireland also avail themselves of the chance to leave.

So long as this remains possible, the euro looks set to remain weak.

The Next Week

In the short term, the fact that Europe has avoided official recession this week should provide some support of the euro.

However this of course will not help solve the problems in Spain and Greece. So long as Athens remains in political limbo, and the markets view Spain’s banking reforms with scepticism, the euro looks set to remain under strong pressure against the pound.

It would take a disaster in the UK to push the pound back down for long at this point.

Get in Touch

I will return with my next exchange rate update next week.

If you would like a no-obligation quote for transferring your money to Spain, don’t hesitate to fill in your details here and see all the services that we can offer at Pure FX  - where we are always delighted to provide an in-depth response to your queries, free of charge.

Peter Lavelle – Pure FX

THE EURO - WHY IS IT HOLDING UP?

The backlash against austerity has begun, following the victory of Socialist Francois Hollande in Round One of the French presidential contest this weekend. So what next for Europe, and the euro?

What next for Europe? This question has quite suddenly gripped the markets in the last day or two, following events that have apparently reduced the edifice of European austerity to rubble. For one, Socialist candidate Francois Hollande took a decisive lead in the first round of the French presidential contest on Sunday, and looks set to convincingly thrash Nicholas Sarkozy in the second. For another thing, the Dutch government has unexpectedly collapsed, following a failure inside Prime Minister Mark Rutte’s coalition to agree EU-mandated spending cuts.

So last week, the German-led consensus toward long and senseless spending cuts appeared solid; this week, we’re faced with either light at the end of the tunnel, or chaos, as markets react to this political rebellion against austerity by abandoning Europe. Which will it be?

Quite astonishingly given this Eurozone turmoil, to date the euro has endured only minor losses against the pound and US dollar. The pound continues to inch up at the time of writing, coming just a third of a cent short of 1.23 against the euro. The sole explanation for this continued euro endurance is that neither the UK nor United States is in much better shape. Looking ahead, I can only see the euro continuing to weaken, unless both the UK and US disappoint in their growth figures later this week (due Wednesday and Friday respectively.)

Let’s look in greater detail then at the current upset in Europe.

Francois Hollande’s “War Against Finance”

In France, Socialist candidate Francois Hollande has made waves amongst both voters and markets by declaring a so-called “war against finance.” His idea (which to some extent, I agree with) is that democratic nations and their governments shouldn’t be in thrall to international markets to determine what that nation does and doesn’t do, in terms of policy. Right now, he argues, European governments serve two masters: their voters, and international markets. This for Hollande is unacceptable.

Of course, you might rightly object that if Hollande has such distaste for investors, he can stop holding bond auctions for France. Then it wouldn’t matter what markets thought of his policies. But this is impractical: in reality, Hollande is right that something must be done to redress the sway over which markets hold European governments right now, and which has led Spain and Greece (among others) to pursue policies that guarantee decades of pain for their voting citizens.

The Netherlands: Stuck In A Rutte*

To some extent, it’s the same problem in the Netherlands. To date Prime Minister Mark Rutte (as well as his trusty finance minister Jans Kees De Jager) have been among the keenest advocates of austerity, arguing (like Germany) that Europe could end its troubles if only the profligate South could control its spending.

Yet in the aftermath of the agreement of the fiscal union, it emerged that the Netherlands would themselves by in violation of the proposed 3.0% annual deficit, and have since then been engaged in finding €15bn in cuts. However the proposed cuts now look set to fall (of course) on the poorest and least well-off in The Netherlands, spurring disagreement among Mr. Rutte coalition partners this past week, and his government to collapse.

Looking Ahead

So what next for France and the Netherlands, and Europe as a whole?

Well, we know from Spain that Francoise Hollande or the Dutch government meekly caving in to market demands for cuts wouldn’t solve the problem. The markets have rewarded Spanish austerity by pushing up borrowing costs, leading me to comment in previous articles on this website that the Spanish are damned-if-they-do-damned-if-they-don’t. There’s no reason to think investors would treat France and the Netherlands more kindly, if they continued to tow the austerity line. Indeed, to everyone except perhaps the Germans, austerity has proven thoroughly self-defeating.

Instead, Europe needs growth. It needs to drag itself out of recession, and get to grips with its spiralling unemployment problem. Then, and only then, should it begin to cut its debts in a sustainable manner. This incidentally is the second plank of Francois Hollande’s platform, and one that (to me) seems a reasonable alternative to the EU/IMF-imposed cycle of cuts and more cuts. Of course, whether Mr. Hollande gets the chance to enact his agenda, or whether he’s beaten down by both the Germans and markets when he (as seems likely) becomes President of France, is another thing. That can be what we look forward to next perhaps.

Get in Touch

I will of course return with my next market update next week.

If you would like a no-obligation quote for transferring your money to Spain, don’t hesitate to fill in your details here. One of our dealers at Pure FX would be delighted to provide an in-depth response to your query, free of charge.

*There must be dozens of journalists that have used this pun this week. Oh well!!

Peter Lavelle – foreign exchange specialist at Pure FX

CAN SPAIN DODGE A BAILOUT?

The pound has continued its climb against the euro, as speculation Spain will need external aid reaches fever pitch.

There’s no doubt then: the slow motion car crash that is the Eurozone debt crisis is back with us. Furthermore this time it’s centred on Spain, where this week yields on government bonds (a good indicator of market confidence) breached the 6.0% danger point. Just 1.0% more and borrowing costs for Madrid will hit the same level as when Ireland and Portugal requested outside aid.

Given this, it’s little surprise that the euro has tumbled against the pound, this past week remaining close to nineteen months lows. This of course provides a great opportunity to secure a good rate if you need to change currencies – just let me know.

Damned if you do…

So how come Spain has followed Portugal and Ireland to become victim to market ire? Well, as I’ve mentioned before on this website, Mariano Rajoy’s government is firmly lodged between a rock and a hard place. On the one hand, the markets fret that Spain isn’t doing enough to cut its behemoth debts (expected to hit 80.0% of annual GDP this year.) But on the other hand, the markets believe that the €28bn budget cuts Madrid has announced to tackle its debts will just plunge Spain deeper into recession.

Talk about damned-if-you-do-and-damned-if-you-don’t in other words! In fact, it is exactly this sort of schizophrenic thinking from the markets that caused Spain’s Economy Minister Luis de Guindos to lash out this week, accusing investors of being “Anglo-Saxon profiteers that hate the euro” (to paraphrase.) Not the must productive outburst perhaps, but his frustration is understandable…

Bailout time?

What can Spain do then to avoid becoming the fourth Eurozone member to need a bailout? In the immediate short term Madrid’s fate is almost certainly out of its own hands. The markets have decided (rightly or wrongly) that Spain is a liability, and will continue to push up interest rates on bonds until Spain can take no more.

To prevent this, it would take an immediate intervention from the European Central Bank (perhaps to re-activate its loan program) to calm the markets again. This could happen, in spite of German opposition to the scheme, if not acting means Spain faces a bailout.

In the medium term meanwhile, the outlook is less certain. Spain needs to grow, but has almost no industries to rely on on which to do so, while its labour and production costs remain 30.0% too high to be globally competitive. To cut these costs means cutting wages among other things, but this would simply exacerbate the recession as spending power decreased. Spain could abandon the euro to avoid cutting wages, but that then opens up another can of worms…

What do you think? Is it time for Spain to re-adopt the peseta and go its own way? Or is commitment to the euro worth the pain it’s enduring?

Get In Touch

I will of course return with my next market update next week.

If you would like a no-obligation quote for transferring your money to Spain, don’t hesitate to fill in your details here. One of our dealers at Pure FX would be delighted to provide an in-depth response to your query, free of charge.

Peter Lavelle – foreign exchange specialist at Pure FX

IS SPAIN THE EU'S LOOSE CANON?

The pound has hit its highest point against the euro since August 2010 this week, as markets react to Spain’s deficit cutting measures with incredulity.

Welcome to my account of changes in the foreign exchange rate in the past week, covering the 3rd to 10th April 2012.

Is the dragon (that is, the European debt crisis) set to re-awaken? Judging from the extent to which the markets are fleeing the euro in favour of sterling right now, it could be the case. In fact, so dire are the straits in Europe (and Spain in particular, it has to be said) that this week the pound hit its highest point against the euro since August 2010, at 1.2135.

Before this, you have to go to November 2008 in the midst of the financial crisis to see this rate, so it really illustrates how much the euro is weakening. The European Central Bank’s $1tn shower of money might have pacified the dragon for a month or three, but it seems to be back, and terrible as ever.

This renewed doubt about the Eurozone comes in large part because of Spain. Ever since Mariano Rajoy’s Popular Party government reneged on its EU-set deficit reduction targets, the markets have doubted Spain’s commitment to cutting its debts.

The general test of confidence is the amount of interest the markets charge to lend governments money: for Spain, interest rates have risen a full one percent in the last month, close to the 6.00% danger point that could prompt Madrid to request outside aid. That gives you a pretty good idea of the trouble Spain is in.

To be fair to Mr. Rajoy and his government, he faces some mind-boggling difficulties. Because Spain is in the euro, Spanish labour and products are much much more expensive than they otherwise would be. The only way for Spain to make itself competitive again therefore is to devaluate internally, which makes cutting wages, cutting spending and (what amounts to) reducing the standard of living for Spanish citizens.

If it seems like the government cuts are hurting people, that’s no surprise: that is exactly what they’re intended to do, and exactly what Greece is undergoing, so that Greece can (eventually) win business and investment on the international market again.

The trouble is that as the Spanish government implements this internal devaluation (which it pretty much has to do, unless it leaves the euro) unemployment rises and morale amongst its workforce drops, which reduces productivity and tax receipts and pushes Spain into recession.

In truth, it’s a bit of a no-win situation for Mr. Rajoy. The markets sense this, which is precisely why, even as the government announces an extra €10bn in health and education cuts this week, interest rates for Spain continue to climb. Furthermore looking ahead, the outline for Spain (and the euro) can only get worse.

What do you think?

Should Spain abandon the euro and re-adopt the peseta, and hence spare its citizens some pain? Should it embark on stimulus spending, even though its national debt is close to 80.0%? Or is it just a matter of grin and bear it, until this “adjustment” is complete?  Do give me your views…

Get In Touch

I will of course return with my next market update next week.

If you would like a no-obligation quote for transferring your money to Spain, don’t hesitate to fill in your details here. One of our dealers at Pure FX would be delighted to provide an in-depth response to your query, free of charge.

Peter Lavelle – foreign exchange specialist at Pure FX

WILL SPAIN TERMINALLY DAMAGE THE EURO?

Welcome to my weekly account of changes in the pound-to-euro exchange rate, covering 27th March – 03rd April. This is intended as a guide to what’s been affecting the exchange rate this past week, whether you’re relocating to Spain or sending funds back to the UK!

The euro has lost a lot of ground this past week, bringing the pound-to-euro rate back above the psychologically crucial 1.20 point, in large part because of the budget challenges now facing Spain.

Spain’s Budget Woes

Spain’s right-wing government announced cuts amounting to a whopping €27bn last week, in hopes of bringing the national deficit down to its 2012 target of 5.3%. The measures include an average cut of 16.9% in departmental spending (although public works bear the brunt of the cuts) and a freeze in public sector salaries. Most controversially, it also includes an amnesty on earnings that haven’t been declared to date, so that people who declare now need pay just 10.0% taxes. (Quite the sucker punch, to people who pay taxes, to be honest!)

Can Spain Meet Its Target?

The euro has fallen because, in spite of this raft of cuts, neither the markets nor Spain’s own colleagues in the European Union seem wholly convinced Spain can meet its target. Borrowing costs on Spanish debt for instance jumped to 5.3% following the budget, indicating that investors have less confidence in Spain’s government repaying its debts.

Spanish finance minister Luis de Guindos meanwhile has stated that Spain has “no room for error” regarding meeting its targets. But given that Spain’s government overspent more than 2.5% in 2011 and national debt is expected to jump 10.0% in 2012 alone – does anyone really think the Spanish government can stay on course?

How Can Spain Grow?

There is also the problem of growth in Spain. So far, Mariano Rajoy’s government has not spelt out how it plans to get Spain growing again, and reduce unemployment that presently stands at 5.4m (about a quarter of the active workforce.) What direction does he plan to take the country, to encourage investment or boost exports? Without a plan for growth, he leaves both markets and the Spanish population with a grim future characterised by endless cuts.

Get in Touch

Looking ahead, the fate of both Spain and the euro depend on the government showing progress. Mr. Rajoy in particular will have to keep to his 2012 targets even if he cannot stimulate growth, to demonstrate to the markets that he’s a safe pair of hands.

I will of course return with my next market update next week.

If you would like a no-obligation quote for transferring your money to Spain, don’t hesitate to fill in your details here. One of our dealers at Pure FX would be delighted to provide an in-depth response to your query, free of charge.

Peter Lavelle – foreign exchange specialist at Pure FX

IS SPAIN SET TO DAMAGE THE EURO?

Welcome to my weekly account about changes in the UK pound to euro foreign exchange rate, covering 20th-27th March.

The euro has crept up just half a percent against the UK pound this week, bringing the GB/PEUR rate to 1.1950 at the time of writing. This means that the pound-to-euro has hovered close to 1.20 for a full three months now and (excluding the possibility of calamity in the UK or Eurozone!) looks set to keep doing so.

EU to Combine Its Rescue Funds

The euro his inched up, chiefly on account of Angela Merkel at last getting out her cheque book and agreeing to combine the Eurozone rescue funds. Europe has two rescue funds at present, both intended to act as a firewall against contagion in the event a Eurozone member needs aid. The original firewall (called the EFSF) has to date lent funds to Greece, Portugal and Ireland, but was only intended to be temporary, pending the completion of firewall two (known as the ESM.)

However, given that Portugal might yet need a second bailout, and Greece a third, not to mention the risk of Spain defaulting, Mrs. Merkel has agreed to combine the two funds, sending a convincing signal (a €700bn signal to be exact!) that she is serious about preserving the euro. Hence this upward nudge in its value.

Spain to Stick to Budget Cuts?

However, looking at the short-to-medium term, it needn’t take much for the euro to sacrifice these slim gains. The chief threat (it must be said) is from Spain. Ever since Mariano Rajoy reneged on his EU-agreed deficit target last month, investors have taken to questioning whether Spain is really committed to cutting its debt. This is reflected in borrowing costs for the Spanish government, which have risen a full percentage point in the past four weeks (close to the danger point, beyond which it’s too expensive to borrow on the market.)

Furthermore, given the forthcoming general strike in Spain this Thursday, as well as the disappointing performance of Rajoy’s Popular Party in Andalucía last week, the temptation on the Spanish prime minister to ease his planned reductions must be great. He should resist ahead of his Budget this Friday though, because to renege further is all the signal the market needs to send Spain beyond the point of no return. (That though would prompt euro weakness.)

Get in Touch

I will of course return with my next market update next week.

If you would like a no-obligation quote for transferring your money to Spain, don’t hesitate to fill in your details here. One of our dealers at Pure FX would be delighted to provide an in-depth response to your query, free of charge.

Peter Lavelle – foreign exchange specialist at Pure FX

It has been another helter-skelter week for the foreign exchange rates, as the UK pound remains at an impressive 1.20 against the euro.

Welcome to my weekly account of changes in the UK pound-to-euro exchange rate! This updates covers 14th-21st March 2012.

The UK pound has stuck fast to 1.20 against the euro this week, at the ceiling of the 1.1750-1.20 range established at the outset of 2012. This is because optimism has bounced back in Britain with a vengeance, on reports George Osborne will upgrade the 2012 growth forecast ahead of his UK Budget. If the good news keeps up, sterling might even smash the 1.20 glass ceiling and climb higher! That though would take something a little bit special.

Osborne to Upgrade UK Growth Forecast

The big reason UK sterling is pushing at the limits of its 1.20 ceiling, is widespread expectations that UK Chancellor George Osborne will dial up his UK growth forecasts for 2012 quite soon, bringing predictions to 0.8%. This is on the back of a string of strong releases in 2012 to date, including dynamite growth in the crucial UK services industry. Of course, 0.8% is hardly going to put the fear of God into the Chinese (who consider their 7.5% forecast for 2012 a disappointment) but it has lifted hopes that the UK return from recession might at last be gaining traction.

UK: Business Investment and Exports, Please!

Looking ahead in the UK, I must admit there’s little hope of sterling gaining more on the back of this particular news. This is because the jump in growth has been priced into the markets by now, meaning sterling will not climb further on the actual release. Of course, Mr. Osborne might surprise us all in his Budget and announce something really uplifting, in which case sterling might gain a second spring in its step nonetheless!

Beyond the Budget meanwhile, UK growth (and hence sterling strength!) remains pinned on the usual suspects: strong business investment as the government dials down spending, and rising exports to developing markets such as the Chinese. The UK will have to demonstrate solid progress in these areas for sterling to break 1.20! What do you think? Could it happen?

Eurozone Crisis at Low Tide

Taking a look at Europe meanwhile, the Eurozone debt crisis has receded into the background for the moment, although like a jack in the box it has the potential to spring back at any moment. This explains why the euro has not gained, in spite of major successes this past fortnight including restructuring Greece’s debt (the biggest debt restructuring since World War II, no less!) In short, the markets have breathed a sigh of relief, but remain cautious about the euro.

Iberia To Jinx Debt Crisis Progress?

Looking at the coming weeks, the biggest challenges come from the Iberian Peninsula. Portuguese ministers have spent this week fending off suggestions Portugal will need a second bailout, in spite of their mind-boggling progress at reducing the deficit (down to 4.0% in 2011 from 9.8% in 2010.) These suggestions are not without cause: Portugal is set to contract 3.3% this year, in spite of the fact that its governments has obeyed EU doctrines to the letter. In Spain meanwhile, Prime Minister Rajoy faces an uphill battle getting regional governments in Catalonia and elsewhere to limit their spending: a crucial piece of his deficit reduction plan. If he fails, it could knock the entire spending cuts program off balance. These things both have the potential therefore to set the euro spiralling against the pound in the weeks to come.

Get in Touch!

I will of course return with our next market update next week.

If you would like a no-obligation quote for transferring your money to Spain, don’t hesitate to fill in your details here. One of our dealers at Pure FX would be delighted to provide an in-depth response to your query, free of charge.

Peter Lavelle – foreign exchange specialist at Pure FX

THE STERLING/EURO EXCHANGE RATE MARKET - STILL HEAVILY INFLUENCED BY MEDITERRANEAN DEBT

Here is my weekly update regarding changes in the UK pound-to-euro exchange rate this past week:

The UK pound had shed a cent and a half against the euro since March 6th, in large part on reports that Greece has secured its critical €130bn bailout, while in the UK there is growing concern about a lack of economic direction in government. However, in spite of this decline in sterling, it remains inside the 1.1750-1.2050 range established at the outset of 2012.

In Greece, officials are optimistic, following confirmation from Eurozone ministers that the Mediterranean nation will receive its €130bn bailout. This follows the completion of the largest debt restructuring in history last week, when Greece cut more than €100bn from its debt by convincing private investors to take less valuable bonds. In the medium term, there is concern this might sow distrust among private investors, especially where other indebted counties like Portugal are concerned. However, in the immediate aftermath of the debt swap, sentiment in Greece has improved markedly, as it looks set to remain inside the Eurozone while continuing its fiscal consolidation. Hence euro optimism.

Looking ahead in Europe, the next challenge is to ensure Spain holds to its deficit reduction targets. Last week, Spanish prime minister Mariano Rajoy incurred the wrath of Brussels, when he told journalists he was unilaterally setting a lower deficit reduction goal for 2012. His goal is just 5.8%, much higher than the 4.4% he’d previously agreed with Eurozone leaders. Since then Brussels has let the argument slide, marking something of a triumph for Spanish sovereignty over EU bureaucracy. However, Rajoy’s decision has immediately called into question Spain’s commitment to eliminating its debt, while damaging the credibility of the fiscal union he’d signed just weeks before. This then could impede future euro gains.

Turning to the UK meanwhile, pound strength has been limited against the euro because of increasing concerns about lacklustre UK performance. The OECD is predicting Britain will avoid a double dip recession in 2012, as output in manufacturing and services picks up. But in spite of this, a growing number of journalists and public officials (including Business Secretary Vince Cable) are pointing to the fact that the UK is lagging in recovery compared to major economies such as France and Japan.

Why is this?

In fact no one quite seems to know, as civil servants pose explanations ranging from less-than-impressive productivity to lagging exports. This then has created an impression that, aside from deficit reduction, the government lacks an agenda as to the direction of the British economy. Hence short-term sterling pessimism.

I will return with my next foreign exchange update next week. In the meantime, if you have any questions about the exchange rate or about changing currencies in general, don’t hesitate to  please contact me. I’ll do my utmost to answer your query to the best of my ability.

Have a great week!

Peter Lavelle  (06.03.2012) - Foreign currency exchange specialist at Pure FX

GANDIA BEACH (VALENCIA PROVINCE, SPAIN) LOOKING WONDERFUL!

Here is my latest update regarding changes in the pound to euro exchange rate this past week.

The pound has gained 2.65% against the euro this past week, as the Eurozone debt crisis takes another turn for the worse. For one, Spanish Prime Minister Mariano Rajoy is defying Brussels concerning agreed spending cuts, just weeks after signing over economic sovereignty to the EU. Greece meanwhile faces default as investors remain cautious about a proposed debt swap. In addition, the entire continent is edging closer to recession as consumer spending and exports fall.

In Spain prime minister Mariano Rajoy is risking a stand-off with Brussels this week, following a press conference in which he set out deficit reduction targets independent of those rubber-stamped by the EU. Mr. Rajoy proposes to cut Spain’s deficit to just 5.8% in 2012, compared to EU-sanctioned targets of 4.4%. This risks conflict because just two months ago Mr. Rajoy signed a fiscal union, agreeing to subject Spain’s national budget to EU approval. He therefore threatens the entire fiscal integration project, before it’s really gotten off the ground.

In Greece meanwhile, public officials are racing to get bondholders to agree to a proposed debt swap before a deadline this Thursday, intended to cut Greece’s debt €100bn. The swap involves investors exchanging their present bonds for ones worth 75.0% less, and has therefore provoked ire on the markets. Nonetheless, unless Greece gets a majority to agree to the swap the entire deal falls apart, potentially causing Greece to default and sparking EU-wide losses of €1.2tn. Understandably then, there’s a great deal of apprehension ahead of the deadline.

Furthermore, all the while these political scuffles are going on, business and consumer confidence in Europe continues to fall. The continent shrank -0.3% in the last three months of 2011 according to data this morning, with both consumer spending and exports dropping –0.4%. Though it’s not yet official, it hence looks all but certain that Europe is once again in recession.

Is the pound set to continue gaining this week? In fact I doubt it, pending some absolute disaster in the Eurozone. This is because the pound has moved inside a 1.18-1.20 range against the euro for some weeks, and would need a real rocket boost to climb higher. In short we can expect a strong pound then, but not a superman pound as it were.

I will return with my next foreign exchange update next week. In the meantime, if you have any questions about the exchange rate or about changing currencies in general, don’t hesitate to please contact me. I’ll do my utmost to answer your query to the best of my ability.

Have a great week

SPAIN AT ITS BEST WITH PLENTY OF ROOM ON PERFECT BEACHES

Here is my latest update regarding the pound to euro exchange rate as of the 29^th February 2012.

The pound has lost two cents against the euro this past week, putting it in the 1.1850 area. This might sound like a significant decline, but in fact the pound has been moving against the euro inside a two cent range (coming as high as 1.2030 on the 16th Feb) since late December. It is hence unlikely to decline much further, unless something significant happens to improve sentiment in the Eurozone or damage confidence in Britain.

The euro has gained in large part because concerns regarding the Eurozone debt crisis have receded, as Greece begins to implement its second bailout and the ECB initiates its second Long Term Refinancing Operation. This is in spite of the fact that Europe as a whole remains in recession, while Ireland might upset a proposed Eurozone fiscal union when it holds a referendum on the issue shortly.

EU officials agreed a €130bn bailout for Greece last Monday, intended to finance the indebted Mediterranean nation up until 2015. On announcement, the agreement was received badly on the markets, in part because EU estimates regarding how soon Greece can return to growth were considered much too optimistic. Since then though, and following a ratification of the bailout by the German Bundestag, sentiment regarding Greece seems to have calmed. There is a feeling that EU officials can put Greece behind them for the moment, and get on with returning Europe to growth.

The European Central Bank meanwhile has been instrumental in improving sentiment in the Eurozone, as it floods the financial markets with liquidity. This morning, the ECB is due to begin its second Long Term Refinancing Operation, aimed at providing European banks with unlimited 3-year loans at just 1.00% interest. Take up at the first LTRO in December totalled €489bn, and has been widely credited with preventing a credit crunch in Europe equivalent to 2008. Hence the sense that the ECB remains willing to support investors with this second scheme has done much to calm nerves.

Of course, Europe continues to face significant challenges that could undermine the euro in coming months. The continent as a whole remains in recession, as countries including Spain and France implement significant spending cuts in order to reduce their deficits. There is the threat that this could exacerbate the economic downturn in Europe, if these countries cut too fast.

In addition, Ireland has brought a proposed Eurozone fiscal union into doubt this morning, as Enda Kenny announced he would put the issue to a referendum. In the past, Irish voters rejected both the Nice and Lisbon treaties in spite of their euro membership. It is hence all too possible they might reject this union too, needed to maintain fiscal discipline in Europe and prevent a second debt crisis emerging. That would cause a headache in Berlin, and raise nerves on the financial markets.

I will return with my next foreign exchange rate update next week.

In the meantime, if you have any questions about the euro or would like to ask about transferring money to Spain, please contact me!

Peter Lavelle (29.02.2012) – Foreign currency exchange specialist at Pure FX