Yesterday, the two main European currencies went in opposite directions: The Pound strengthened and the Euro weakened. Why is this happening?
Let’s begin with the Euro:
There’s no doubt that the European Union is a strange financial entity. You have Spain with over 19% unemopplotment and The Netherlands with under 4%, and they both use the Euro with the same interest rate even though they have totally different financial conditions.
In addition, it seems as if some members of the EU (European Union) are on the verge of collapse. I’m referring primarily to Greece which is not only in major problem but has, as I’ve read, lost all credibility with the market.
As Greece is using the Euro it seems likely that the more stable economies in Europe will have to do what they can to bail out the Greeks from their trouble. This may mean more Euros flowing into the market pushing its value down further.
In addition, news in other countries aren’t so rosy as well. I’ve spoken about Spain in which over 40% of young people can’t find a job and you see how much strain is placed on the Euro and members of the EU.
Click here for a Free trend analysis of the EUR/USD
On the other hand, the Pound is enjoying a slight rally. This doesn’t mean that the British economy is suddenly fine. Far from it. The Brits will take a while to recover but it seems as if there are signs that there is a slight improvement in the data of the housing market.
In addition, it seems that the bad economy is indirectly bringing about conditions of a strengthening GBP. This happens because the market expects a lot of money to flow into Britain due to a number of takeovers about to take place. The most prominent one is by Kraft Foods who wish to acquire Cadbury.
If these takeovers do take place, the purchasing companies will need to acquire a lot of pounds, driving up their value.
Click here to see a trend analysis of the EUR/GBP
Isn’t Forex fascinating? Look at how many things factor in the market.
