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Euro Rises On Market Optimism; Pound Falls On Contraction Risks

Published 11/23/2012, 02:12 AM
Updated 07/09/2023, 06:31 AM
Markets were at first disappointed with the want of a Greek agreement among the European leaders during their meeting in Brussels this week, but hopes were renewed when German Chancellor Angela Merkel expressed optimism that a decision would be reached on Monday when the finance leaders reconvene to further discuss the Hellenic Republic's debt restructuring program. As a result, the euro rose in the previous European trading exchanges, In contrast, the Great British pound fell on weak economic fundamentals, raising fears of a contraction in the fourth quarter.

The euro is expected to find support from the release of the European PMI data, showing that manufacturing and services-activities in the currency union in November were not as weaker as markets initially expected. But considering that the manufacturing and services sectors remain in the contraction territory, the single currency is likely to trim down gains versus the pound.

Today, markets look to the EU Budget Summit, wherein the leaders would discuss the currency union's seven-year budget. A deal that would put first the interest of the region rather than the individual interests of each member state, is seen to extend support to the shared currency.

In the UK, the CBI Industrial Order Expectations report showed manufacturers' expectations of a reduced output in the next three months, while overall orders are relatively flat, according to the CBI. The factory orders index came in at -21 points this month, from October's 23 point-figure, the lowest level since December of 2011.

Although the Sterling benefits from the uncertainties in the euro region, economic challenges within are seen to weigh on it versus its peers. With signs that Britain’s economy is struggling to recover, the sterling is seen to face mounting pressure. As such, a buy bias is suggested for the EUR/GBP pair in today’s European trades.

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