It seems to be all a matter of confidence, and unfortunately for the Euro, confidence is fading fast. Markets have scrambled into safe havens including Gold and the Swiss Franc in recent weeks as there are now genuine fears that the single currency is under threat. Italy and Spain have seen bond yields widen even further and both are edging ever closer to the 7% level on their 10 year bond, the same level that Greece, Portugal and Ireland were unable to sustain.
The US also has its own problems at the moment although the deadline to avoid a default has been reached. Debt levels look set to soar in 2012 and 13 and the outlook for growth is very limited, with some even suggesting now that the US has around a 50% chance of having a double dip recession. Factory data released yesterday from both the US and Eurozone suggest that the recovery is slowing down.
Sterling now has it all to play for, but don’t be surprised to see Sterling slip at stages due to negative sentiment coming out of the Bank of England and Government. The last thing that the government will want at this stage is Sterling gaining strength at a quick pace as this could damage exports and slow growth in the UK. Sterling is now in a prime position to take advantage of what should be a weakening in the Euro and also the Dollar, hopefully seeing 1.14/15 against the Euro become a more common figure and the high levels of 1.64/65 achieved again against the US Dollar.
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