Happy New Year GBP/EUR 1.21!!!

Is your high street bank ripping you off

It’s certainly a happy new year with GBP/EUR over 1.20 With the festivities over the market is firing again on all cylinders. Governments in Italy, Spain and France are having to pay steadily higher rates of interest on their borrowing. Italy faces the task of refinancing the thick end of half a trillion Euros in the next 12 months. France is under threat of a credit downgrade. Austerity measures are doing more to depress economic growth than to restore investor confidence.

Just before Christmas the ECB handed out €489bn of three year loans, hoping that recipient banks would invest some of the cash in high yielding Italian bonds. This week it announced that Euroland banks have €453bn on deposit at the ECB. Although this does not mean the ECB's liquidity operation has failed, it is a reminder that the Euroland commercial bank system is in less than perfect working order.

Not surprisingly today the euro conceded a cent and a half to the US dollar and half a cent to the pound. Economic data from Euroland did little to help, with industrial new orders rising at an annual 1.6%, more slowly than forecast, and the producer price index slowing from 5.5% to 5.3%. Britain (Sterling) did better than expected, topping the monthly table of services sector purchasing managers' indices with an improvement to 54.0.

Sterling is managing to keep its distance from the Euroland, helped by the prime minister's veto last month and by a reasonable confidence that Britain's AAA credit rating is not under any short term threat

The major factor overhanging the currency markets and indeed the financial world has been the crisis in the eurozone. Europe is still deep in crisis and omens are not looking good. The effects of this are being felt globally - for example, Asian markets in particular have been struggling. This is because one of their largest export markets starts to shut up shop to foreign goods therefore restricting trade.

The Japanese and US dollar currently are the two favoured safe haven currencies of choice for nervous investors who are keen to put their money in a secure place. The pound’s growing stature as a safe haven currency is certainly warranted, with the UK Government sticking rigidly to their austerity measures. This has resulted in the UK being the only Western economy that has actually had its credit rating improved in the last 18 months.

And what does 2012 hold? Much hinges on Europe and its survival and (hopeful) recovery. The depth of the turmoil in the eurozone has taken its toll. In the past 12 months, there were real fears that the eurozone would implode, triggering a meltdown round the world which would have been even more severe than the 2008 credit crunch.

To find out how global affairs will affect your currency transfer contact Moneycorp on 0207 828 7000. You can also send your enquiry by email comparemoneytransfer@moneycorp.com

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Happy New Year GBP/EUR 1.21!!!

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