Euro decline continues on the back of disappointing summit

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We saw the euro drop three cents against the US dollar and two against sterling, after another difficult week. The GBP-EUR rate, currently above 1.19, hit a 10 month high at 1.1940 yesterday. This represents a perfect opportunity for those in need to buy Euros that are already taking advantage of the continuous euro weakness.

The outcome of the recent European summit was insufficient to restore market confidence and the threat of further downgrades from main credit agencies have become a very real prospect.

Standard & Poor’s downgraded 10 Spanish banks yesterday whilst Fitch did the same with eight French banks, among them BNP Paribas and Société Générale.

Some positive news came from yesterday’s successful Spanish bond auction. Spain managed to raise €6 billion, far above its original €2.5-3.5 billion target. In the bond auction, Spain paid a borrowing rate of 4.023% for the four-year bonds, which is sharply lower than comparable auctions in previous months,

The result allowed Spain to mark its distance from crisis-engulfed Italy, which was forced to pay record high borrowing rates in a bond sale just a day earlier.

There was a risk that the British prime minister's decision to walk away from the euro zone "fiscal compact" could have lessened investors' appetite for sterling. It did not happen.

With the focus firmly on the euro, sterling's simple task was to avoid the limelight and to pick up whatever came its way. It did not make a perfect job of it (sterling lost half a cent against the US dollar) but it made a good enough fist of it to avoid any real damage. The only major UK data to come out during the week were those for inflation, employment and retail sales. Inflation and unemployment were roughly in line with forecasts at 4.8% and 8.3% respectively. The only disappointment was retail sales, as the Office for National Statistics and the Confederation of British Industry both reported lower sales.

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Euro decline continues on the back of disappointing summit

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