Currency watch: A continent divided

Europe’s a funny place isn’t it? A mixture of the lackadaisical and the labourious, the determined and the delinquent, the hard working and the hard drinking, all in their own little states.

The divergence between the typically industrial and austere North and the more relaxed South has never been more clear as the markets continue to fear the South’s ability to repay its debts.

While Portugal, Greece and Spain have seen bond auctions pass without incident in the past couple of days, this is only due to the European Central Bank actively buying up the debt. The yields on these issuances have been close to a crippling 6% and is only kicking the debt can further down the road.
 
Strangely a combination of other factors, mainly the prospect of further quantitative easing in the US and UK, has led the euro to four-month highs against both the US dollar and sterling in the past week.

It will not last. Granted, recent statements from the Bank of England and the Federal Reserve have acknowledged the speed of the recovery in their respective countries has slowed; without Germany the EU would likely be still stagnant.

In the meantime we expect to see the euro weaken in the coming weeks back to levels consistent with its fiscal position. If you are a holder of euros and need to exchange it, now may be the best time for a fair while.

Jeremy Cook, chief economist at World First, 24.09.2010