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Eurozone: Decision time for Spain

  • 16 April 2012

We open this week with the realisation that the recent lull in the crisis in the Euro is now over. Last week saw rising government bond yields in Italy and particularly Spain which has continued this morning. However let us look first at another signal which is the Euro exchange rate and whilst we will briefly note that the Euro has touched 1.30 this morning versus the US dollar this is not the one I mean. In some ways it is the exchange rate versus the UK pound sterling which is signalling something of a change as it pushes forwards to 1.2170. Yes the poor old battered pound has been making some progress after a weak period where the Euro had bullied it! Indeed it has been making something of a surge today. Yet if you look at the UK with a coalition government looking rather hapless and frankly often incompetent and a weak economy we do not see the foundations of a strong currency unless the competing alternative outlook is worse.

Actually £ has been making a recovery since the Euro crisis began as the dog days of 2007/08 and its fall to 1.05 have been replaced by rises of 7.8% in 2009,3.3% in 2010 and 4.4% in 2011. So are Florence and the Machine right to sing?

"The dog days are over

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