Euro Still Fragile As Irish Austerity Measures Outlined

The Pound reached a two month high against the Euro in the past twenty four hours as the Irish government outlined measures to save €15 billion from the budget over the next four years. This includes measures which will see a €1 cut in the minimum wage; the axing of thousands of public sector jobs; social welfare spending will be cut; a new property tax will be levied; VAT will be increased; and income taxation will rise.

Pound Sterling – UK Markets

The Pound closed at €1.1851 against the single currency, rising by a further 0.5% over the course of the day as investors remain not fully convinced by Ireland’s budget proposals. It weakened further against the Dollar to close at $1.5808. UK property sales have declined by 11% in the year ending in October according to HM Customs and Revenue. 79000 homes were sold this October, a fall of 10000 over October 2009. The decline has been attributed to uncertainty over the economic effects of the government’s austerity plans which have hit buyer confidence, coupled with the continuing difficulty of obtaining a mortgage. In another area of the economy, the CBI Distributive Trades Survey data this morning however which measures trends in UK retail and wholesale distribution has registered an improvement.

US Dollar – US Markets

The Dollar closed the day higher against the Euro at $1.3339, gaining a further 1.2%. Market concerns are progressing from Ireland to concerns in Portugal and Spain keeping the Dollar higher against the Euro further helped by some positive US data. US household income and consumer spending both rose in October by 0.5 and 0.4% respectively. A further positive surprise was that the weekly claims for unemployment benefit had unexpectedly dropped to their lowest level for two years. On the negative side of the ledger, house prices and new house sales fell again. New home sales were down by 8% in October over the September figure and total sales were at their lowest level since 1981. House prices fell by 0.7% in September.

Euro – European Markets

The Euro has continued to fall against Sterling, the Dollar and the Yen as concerns over debt contagion in Ireland, Spain and Portugal occupy trader’s minds. Positive German data has failed to lift the Euro in the wake of the wider problems in these nations. It was revealed yesterday that the Irish government hopes to return the budget deficit to the 3% level permitted for Eurozone countries by 2014 – although the Euro has not shown signs of moving upwards suggesting markets are not fully convinced. German business confidence is at a 20 year high. The IFO Business Climate index had been expected to fall, but rose from 107.7 to 109.3, indicating that the German economy is recovering strongly (in relative terms, at least). More German data follows tomorrow with the Consumer Price Index.

Other Currencies – Highlights

The Japanese Yen strengthened as a safe haven in reaction to Europe and also speculation that China will be forced to take measures to deal with inflation. Data also just released suggests that the Japanese export growth has slowed. The figure for October came in at 7.8% compared to the September figure of 14.3%. Exports to the EU fell for the first time in a year and US imports were also down. This was partially offset by a rise in exports to China. The rate of the slowdown was worse than most analysts had expected. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.