In the previous European trading session, the Euro gained 19 pips versus the Great British pound on speculations that Spain is close to a bailout, and Greece would receive financial aid next week when the European officials meet and decide on the matter. In the UK, the release of the Retail Sales data weighed on the Pound as it added to signs that the economy could contract once more in the fourth quarter. In today’s European trades, the EUR/GBP is expected to rise versus the Pound, although gains are seen to be limited.
In order to reduce budget deficits in 2012 and 2013, the Spanish government led by Prime Minister Mariano Rajoy, came up with budget measures to accomplish its budget goals. And these measures were endorsed by European Union Economic and Monetary Affairs Commissioner Olli Rehn, clearing the way for Spain to request for a sovereign bailout. Markets consider a Spanish bailout as positive for the Euro and as investors pin their hopes for a bailout request, the single currency is likely to strengthen. Meanwhile, The European finance leaders were not able to reach an agreement at their meeting this week as regards extending Greece financial assistance, instead, they gave an the indebted country more time to meet austerity targets that would warrant financial assistance. The leaders are once again set to meet next week and there are now speculations that a Greek deal would be reached on November 20, as Italian Finance Minister Vittorio Grilli said that he is optimistic that a decision would be reached by that time. Although the single currency is expected to advance versus the Pound, gains could be curbed by economic uncertainties surrounding the region. Yesterday, the Euro Zone economy shrank by 0.1 percent in the third quarter as a 0.2 percent-growth posted by both Germany and France was not able to pull up the region from a double-dip recession. Weakness in Italy, Spain, and the Netherlands pulled down the region’s GDP.
In Britain, Retail Sales fell by 0.8 percent in October, the weakest reading since April, and worse than economic expectations, increasing speculations that the UK economy would again contract in the third quarter. The Bank of England signaled on Wednesday that increasing its asset purchases has not been ruled out, and that the economy could shrink again in the fourth quarter. Because of this, the Sterling could exhibit further weakness. Thus, a long position for the EUR/GBP is recommended in today’s European exchanges.
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