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Cause and effect

Peter Rexstrew of currency exchange specialists Premier FX looks at the wider implications of Portugal’s economic problems

Is it another negative week for the Pound against the Euro? It seems that way, as sterling really is catching the flu, and is getting dragged down by all the bad news emanating from Europe.

Portugal is looking more than likely to receive a bail out from the EU and, under previous government agreements, the UK alone will have to contribute well over £3.5 billion to fund the emergency measures required by its ailing European partner.

This is not good news as the UK economy itself is hardly forging ahead. The only light relief for the Pound is that the market may look to buy it at some point because it feels that it is a viable alternative to all the Euro problems.

This will only give it temporary respite however, and it seems the sterling weakness will continue.

Confidence is low in all currencies and sterling’s suffering will continue even if UK interest rates do rise, as predicted soon.

It is obvious that Europe has more bad news to come. Along with Portugal, Spain is now prone to bail out rumours.

This could well be true, and will have a larger effect on the currency market, and overall economic confidence, than Portugal’s problems.

This week will not be easy in the FX markets. It will certainly be volatile, so be aware of that, and certainly don’t get carried away that the market will rise.

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