EUR/GBP: Euro Zone Encounters More Roadblocks

The Euro suffered losses versus the Great British pound on growing concerns that the debt crisis is worsening. The Sterling gained on the other hand as mortgage approvals rose to the highest level in September since April of this year. As more challenges emerge for the European region, the single currency is likely to come under pressure. Thus, bearish trades are expected for the EUR/GBP pair in today’s European exchanges.

After affirming Spain’s credit rating this month, Moody’s Investors Service cut the credit ratings of 5 of the country’s regions including the heavily indebted Catalonia. The credit downgrades added to market jitters that are seen to be fanned by Prime Minister Mariano Rajoy’s statement that he remains undecided whether or not to seek for financial assistance. A Spanish bailout is considered by some as a significant step to suppress the debt crisis as it would trigger the European Central Bank’s bond buying to help lower borrowing costs. Unless Spain requests for a bailout, the shared currency is likely to weaken versus its peers.

The Euro region also faces another challenge as Thomas Pringle, independent member of the Irish Parliament, objected to the ratification of the ESM treaty, saying that it would violate the terms of the EU treaty. A judgment by the EU’s highest court is expected by the end of this year. An unfavorable ruling is seen to pull down the single currency versus its peers as it would ruin efforts of the European leaders. Also seen to add to the bearish sentiment are the US corporate earnings reports that have missed analysts’ expectations, diminishing investors’ willingness to buy the shared currency. With the Euro likely to come under mounting pressure, a sell bias for the EUR/GBP pair is recommended in today’s European trading exchanges.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.