The euro remains close to a 10 week low against the pound and an 11 month low against the US dollar this morning as concern over the European sovereign debt crisis continue to focus on Portugal following the €85 billion bailout of Ireland.
With the Portuguese government due to auction 500 million euro’s of bonds later, analysts are waiting to see the extent of market interest. It comes a day after ratings agency Standard & Poor’s placed Portugal on credit watch due to the country’s huge debts. Meanwhile, Portugal’s central bank warned of the risks facing its banks. It said they faced an “intolerable risk” if the government in Lisbon failed to consolidate public finances.
This follows a steep rise in the borrowing costs of Portugal, Spain and for the first time, Italy and Belgium as the sovereign debt crisis afflicting the euro zone continues.
Meanwhile, in another sign that economic conditions may be tougher in the months ahead for the UK, the Nationwide reported that UK house prices fell again in November.
The average price dropped by another 0.3% to leave it just 0.4% higher than a year ago at just over £163,398. The continued fall in house prices as measured by the Nationwide was the fourth drop in the past five months. Prices in the past three months were also 1.3% lower than they were in the previous three months, a good indication of the recent trend.
The Nationwide’s economist Martin Gahbauer said he expected more of the same in the coming months.
In another sign of a global slowdown and a rise in risk aversion, Australia reported overnight that its rate of economic growth slowed between July and September as the high value of the Australian dollar ate into export earnings.
The country’s gross domestic product (GDP) rose just 0.2% during the third quarter period down from growth of 1.1% between April and June. Analysts said Australian consumers were also hit by higher interest rates. However, the Australian economy is set to continue to grow, led by demand from China for its raw materials.
Michael Blythe, chief economist at the Commonwealth Bank, said the latest economic growth figure was a “disappointing outcome”. He added “We’re still churning out what’s a decent rate of growth but it’s not as solid as it had looked.”
Helped by its vast exports of iron ore and other raw materials, Australia has avoided recession for 19 years.
We now have near 10 week highs on pound/euro and whilst the situation in the euro zone is far from resolved, there is clear evidence that more difficult economic times are facing the UK so clients with currency requirements involving the sale of the pound may wish to hedge their bets and take advantage of current rates.
