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Euro gains as Rajoy’s waiting game pays off

The euro continued its slow ascent against the pound and US dollar this week, bouncing back ever since its July nadir of 1.20 against the greenback.


Welcome to the Pure FX account of changes in the euro exchange rate, covering the 12th to 19th of October 2012. This is intended as a brief guide to movements in the euro this week, to put you in the best position for when you exchange currencies.

Latest exchange rate changes

Pound to euro: 1.2398 to 1.2276
Pound to US dollar: 1.6036 to 1.6038
Euro to US dollar: 1.2936 to 1.306

Who would have thought it? The euro continued its slow ascent against the pound and US dollar this week, bouncing back ever since its July nadir of 1.20 against the greenback. This is chiefly as Spanish prime minister Mariano Rajoy’s strategy of simply waiting out the markets pays off, and events turn in his favour.

What’s affected the rate this week

This week both Finnish and German opposition to, if not a bailout, then a “precautionary line of credit” for Spain, lessened.

Finland’s prime minister Jyrki Katainen said in a speech in Bucharest, “I’m sure they will not need a full program like Ireland or Portugal, and instead they might need some sort of a precautionary program.”

This echoes comments from senior lawmakers in German chancellor Angela Merkel’s Christian Democratic Union, that Germany might be open to Spain receiving advance aid.

Elsewhere, Spain also enjoyed a stroke of good luck, as credit rating agency Moody’s defied widespread expectations by keeping Spain’s credit rating at Investment grade.

Moody’s maintained Spain’s rating at Baa3 this week, one notch beneath Junk, chiefly owing to the European Central Bank’s promise of unlimited support for Spain, should it request a bailout.

Hence, the euro rose, and events seemed to turn in Mr. Rajoy’s favour, without him lifting a finger. Perhaps there’s something to be said for his strategy of “Wait out every crisis” after all then?

What’s going to happen next

I think the euro will keep gaining. This is because, since August, there’s been a real sea change in attitudes to the Eurozone crisis.

In particular, ever since ECB President Mario Draghi unveiled his bond buying scheme, the feeling has been less one of inevitable breakup, than a crisis being overcome.

Since then, the Eurozone rescue fund (the European Stability Mechanism) has also come online, while at the present EU summit, heads of state are putting the finishing touches to the framework for a banking union.

This isn’t to say global financial confidence will return tomorrow, but there’s a lot of positive sentiment right now, and that’s driving the euro.

How this affects you

If you happen to be in Spain or Portugal right now, and wish to transfer money out of the Eurozone, these present changes are beneficial. This is because, as the euro gains, you’ll be able to enjoy a better exchange rate for whatever foreign currency you buy.

Find out more: I do hope you’ve enjoyed reading this update. To find how what I’ve talked about here will affect your euro transfers, fill in your details into the form below. I’d be delighted to answer any questions you may have.

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Peter Lavelle is an economist at foreign exchange broker Pure FX. For a free no-obligation quote regarding changing currencies, get in touch at foreign exchange specialist Pure FX.

Copyright: Peter Lavelle, Pure FX
Category: Expats
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