Why Is The Euro So Strong?
The euro remains very attractive against the pound and the dollar despite the ongoing problems presented by European Debt and the probable bailouts or defaults. I have read today of a report by the BBC which stated two thirds of European economists surveyed expect Greece to default on their debt.
Last year such an announcement would have had the markets in absolute turmoil, indeed much of last years weakness on the euro was due to the debt crisis.
This year despite the well publicised problems in Portugal, Ireland, Greece and Spain the Euro remains a very unattractive prospect for those looking at buying overseas property. This is due to a number of factors:
– EFSF – The European Financial Stability Facility is designed to act a safety net for indebted European nations. The fund has recently been made permanent and has given the markets the confidence that the ECB and stronger Eurozone members are serious about coming to the financial aid of the weaker members – a criticism levied at many members. As discussed European Debt concerns had been a major weight on the euro last year but now the issue is well known and appears to be being dealt with confidence has been restored. It is worth noting that longer term this is likely to be the issue that could present Euro weakness as concerns arise over the inability of the indebted nations to repay their debts.
– Interest Rate Decisions – The UK looked almost certain to have a rate hike in the first quarter of this year and the pound made strong gains on the euro as investors positioned themselves for the event. We then had a barrage of data releases showing that in all probability the UK wasn't ready for a hike and as such these positions were unwound and led to sterling weakness. Conversely the Eurozone has been floating the prospects of an interest rate hike as soon as next month. With unemployment falling it appears the Eurozone may have turned a corner and will be the first to stomach a rise in the base rate. This has compounded the problems for the GBPEUR rate as investors have taken up stronger positions on the Euro. The US economy whilst growing is still incredibly weak and due to the amount of cheap loans issued to stimulate recovery cannot afford to go raising rates. They are still administering the latest round of Quantitative Easing and will need to fully assess the effects before committing to a rate hike.
- Economic Outlooks - The economic outlook for the Euro has improved this year with enouraging signs in manufacturing and factory orders. Unemployment is falling and the overall picture remains bouyant despite the problems of the PIGS. The UK is suffering from very low growth and the immediate future does not look rosy either. It could be months or a year before the economy is deemed strong enough to be able to handle a rate hike and even then if the Euro has already had one, it is unlikely to be a major mover.
Despite the grim news for those buying Euros, such a trend is excellent news for those selling euros. Movements this month of over 5% in your favour are presenting a great opportunity to maximise those property sales.
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Questions and Answers
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