Money Exchange Outlook: Pound Sterling Receives a Boost

The euro remains close to a two month low against the dollar as uncertainty about Greece and weak German economic continued to fuel risk aversion thus increasing demand for the safe haven qualities of the dollar.

The euro zone continues to dominate the news agenda, largely for the wrong reasons. The one bright spark yesterday was provided by the news that the Greek Treasury manager to sell close to €5 billion in short term bonds yesterday thus averting a possible default at the end of the week. However, the outlook for the country remains distinctly grim.

Meanwhile, the German ZEW Survey for November revealed that German economic sentiment dropped in October, disappointing the majority of analysts who were forecasting a slight improvement for the euro zone’s biggest economy after small gains were registered for August and September. The data also showed that economic expectations for the euro zone also fell in October.

ZEW President Wolfgang Franz stated “Since mid-2012 the economic expectations of the financial market experts move more or less sideways while remaining in the negative territory. Prevailing recessionary developments in the euro zone impact the German economy via foreign trade and a lack of confidence. This is likely to be a burden for economic growth in Germany during the next six months".

A reaction to all the austerity measures will be seen today in capital’s throughout the euro zone as a day of coordinated protests take effect as Spain and Portugal hold general strikes while Greece and Italy plan work stoppages of three and four hours, respectively. Unions in France, Belgium and Poland will be showing support by staging rallies throughout the day with high speed rail services between Germany and Belgium cancelled.

In the UK, the pound received a boost yesterday from a strong jump in October's inflation figures. The Office for National Statistics reported that the UK Consumer Prices Index (CPI) measure of annual inflation came in at 2.7%, up from 2.2% in September, a considerably stronger rise than had been anticipated by analysts.

This was the joint largest increase in the CPI between September and October since records began in 1996.

Analysts suggested that the bigger than expected increase in UK inflation reduced the chances that the Bank of England will increase the size of their asset purchase program, known as Quantitative Easing (QE) beyond the £375 billion spent so far. The QE program is designed to stimulate economic growth by increasing the cash flow of the UK economy but this has the side effect of devaluing the pound.

A report from the respected US Conference Board makes grim reading this morning. It suggests that the catch-up boom in the four so-called BRIC economies (Brazil, Russia, India and China) is largely over and will be followed by a dramatic slowdown over the next decade. The outlook for Europe is even worse with a prediction that France will stay in depression with near zero growth as far as 2025 and the UK will struggle to raise its growth rate beyond a miserly 1% over the next 15 years. Its main argument is that the ‘low-hanging fruit’ from cheap labour and imported technology has already been picked.

Money Transfers to Australia:-

The Australian dollar is stabilising after the Reserve Bank of Australia unexpectedly kept Australian interest rates unchanged at the beginning of the month and a short term boost is expected from the announcement tomorrow of the men who will rule China for the next decade. This is driving the pound-Australian dollar exchange rate lower at the moment.