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Thursday 29 April 2010

Sterling vs Euro for Property Purchase in Eurozone & Canary Islands

Latest on Sterling vs Euro and financial markets by Halo Financial for those buying properties in the Euro zone and Canary Islands:
Yesterday was a day of ooops moments; Gordon Brown forgot he was wearing an open microphone when he spoke insultingly and dismissively of a woman who had merely expressed her fears over unbridled immigration and the Eurozone suffered a couple of oops moments when Spain had its credit rating downgraded by Standard and Poors and when it seemed the Greek bailout could suffer further delays; delays that Greece can ill afford. There was a bright spot for Greece though in that the International Monetary Fund suggested the bailout package could be more than double the initial estimate of €45 billion that was mooted a few weeks ago.
Apart from being long overdue in many analysts’ eyes, the Spanish rating downgrade was seen by many as a warning shot across Britain’s bows; a strong hint that unless the next government gets to grips with our debt problems straight away, Britain too could have its sovereign debt rating lowered. Apart from being just plain embarrassing, it makes servicing the existing debt more expensive because, just as Greece is discovering right now, a lower credit rating means a country has to pay a premium over and above bonds in countries like Germany and America, to lure investors. When you owe as much as Britain does, even a small premium sucks significant funds out of the domestic economy and hampers growth.
So when the dust had settled on all of that, the outcome was that the Pound fell, the Euro fell and the US Dollar which is the global safe haven these days, strengthened across the board. Of the Pound and Euro, Sterling had the most to lose in the short term because it has been doing rather better than the Euro of late and Gordon Brown’s faux pas made the hung parliament story spring back to life. I know the threat to the economy of a coalition government is being downplayed by all manner of ‘experts’ and politicos but the fear of a lack of clear leadership is the issue that dogs the Pound whenever hung parliaments are mentioned and I don’t think it is a debate with an answer until the election is over and, if we are to have a hung parliament, the wrangling and negotiating about the form that the next government will take is concluded.
In other news we saw the Reserve Bank of New Zealand leave its base interest rate on hold last night at 2.5 percent. Not only did the RBNZ do as many had forecast they would but they also suggested the tightening cycle, when it comes, would not have to be as fast and furious as had previously been thought. This is a factor of the steadier recovery than we had all hoped for. The New Zealand Dollar weakened a little against most currencies when the announcement was made but Sterling was on a slide anyway so the Sterling - NZ Dollar exchange rate is actually 5 cents lower this morning than when it peaked earlier in the week.
We also had an interest rate announcement from the US Federal Reserve late yesterday and, just like the RBNZ, they left their base rate on hold but their current level is much lower than the Kiwi base rate. The Fed is currently operating on a variable Fed funds rate between 0.0% and 0.25% and they reiterated their view that this will remain the case for some time to come. However, they did change a couple of lines in their well read standard statement; they saw both the housing and the employment markets improving slightly whereas in previous statements they have commented that these areas were flat. Don’t laugh but these miniscule changes in central bank communiqués get some analysts in a right old tizzy. It is certainly enough to move the US Dollar but that is already being bought heavily by investors seeking the safety of the US bond and equities markets.
Today is a quiet one on the data front with no more than a smattering of EU data to keep the financial market roulette tables spinning. We get EU money supply data and three economic confidence indices to mull over along with German employment data. This evening’s main event is the last of the party leader TV debates before polling day and it looks set to be a corker. I think we should have a sweep on how many times Gordon Brown’s “bigoted woman” comment gets alluded to, another on how many times the word ‘Brave’ is used to describe those in the armed forces in that rather patronising tone that politicians tend to adopt when they speak of the military personnel and another on how many times the word ‘change’ is used. This being the last chance for the three of them to make their mark, it looks set to make for very entertaining viewing.
Have a great evening’s viewing. Popcorn anyone?

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