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Euro declines on Spanish bank run rumours

The euro fell to its lowest point against the USD since mid-2010 this week, as concerns about a Greek exit from the euro and a Spanish bank run escalated.


Here is my latest update on the euro exchange rate, covering the 18th to 25th May 2012. This is intended as a brief guide to what’s affected the exchange rate this past week as well as what might happen next, to help you decide if now’s the best time for you to change currencies.

This past week:

1. The euro fell to 1.27 against the US dollar, its lowest point since July 2010.

This is as markets (over?) reacted to speculation Greece will exit the euro inside weeks. In addition, the suspension of Bankia shares, as the troubled Spanish bank announces it needs €12bn more in aid, contributed to concerns about a bank run in Spain.

How might this affect you?

Obviously, if you reside in España, you might like to think about whether having all your money in Spain is a good idea. Some €200bn has already left the country in the last 12 months, according to The New York Times.

How might this affect the exchange rate?

The euro is set to remain extremely weak against the USD for the moment (although the common currency has held against the pound, as the implications of a Greek exit on the UK become apparent.) For this situation to resolve, really, the markets need a clear answer about whether Greece is leaving the euro, and whether Spain will soon receive support for its banks.

2. The pound has held firm against the euro at 1.2450.

However, it has lost out to almost every other major currency, as concerns about both Eurozone contagion and deepening recession limit UK confidence. For instance, the ONS revealed this week that the present UK recession is deeper than previously thought, as the construction industry goes into reverse.

How might this affect you?

If you’re in the UK, it means the present doubts about both job prospects and job security look set to continue. Indeed, it’s worth noting that the coalition government has only really just begun with its debt consolidation program: the deepest cuts are scheduled for 2014-2015.

How might this affect the exchange rate?

It could keep the pound under pressure too, as the Bank of England reacts to the deepening recession by injecting more stimulus. This of course is a sign of a weak economy, which makes the pound less attractive. However, it might conversely cause the pound to gain, as markets react to the absence of safe havens around the globe by favouring sterling.

I will of course return with my next update next week. If you have any questions about changing currencies or transferring money abroad in the meantime, don’t hesitate to leave a reply in the box below. I’d be delighted to provide an in-depth personal answer to your enquiry, free of charge.

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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, Spain News
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