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Currency News Report 221012
25 October 2012

It seems the Pound is struggling currently - despite good economic news last week in terms of unemployment and public borrowing, there were losses for sterling against most currencies, including the Euro and US Dollar.

The European Central Bank announced plans to regulate all banks in the Eurozone from as early as next year, in a move seen as widely positive for the ailing single currency, and a closer step towards fiscal union. This strengthened the Euro, giving lower rates for sending Euros, particularly against the Pound which is likely to suffer from European policy-making in the future. The crucial financial services sector in London could be marginalised by Eurozone policy, given that the single currency bloc will surely be acting mainly in self interest in the future.

The British government therefore faces a tricky path in negotiating a fair deal for Britain, while resisting pressure from eurosceptic MPs to leave the EU altogether. Whether we will be promised a referendum after the next election, or whether the government will lurch through further crises meanwhile, remains to be seen - but the short term future for the Pound does not appear to be rosy.

This week we have the first reading of GDP due out on Thursday morning, and the UK economy is expected to have returned to growth in the third quarter. If it hasn't, then we would expect to see significant losses for sterling. In addition the prospect of an extension to Quantitative Easing in November, hinted at in the Bank of England minutes last week, would also be bad news for the Pound.

Elsewhere this week we have interest rate decisions in Canada, the USA and New Zealand, which can affect the CAD, USD and NZD respectively. And in Spain, the prospect of a full bailout request remains, with unpredictable consequences on the markets.

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