Euro Spread Betting Market Benefits From Unloved Dollar

Posted on | September 2, 2010 |

Germany is still doing the legwork for the wider Euroland economy.

In spread betting Sterling had to hand back last the cent it had worked so hard to add a fortnight ago. Its range was only marginally wider than that but it started at the top and opened in London yesterday morning close to the bottom.

The week got off to a bad start after The Times published an interview with Monetary Policy Committee Member Martin Weale. Asked if Britain was on course for a double-dip recession, Mr Weale said, reasonably enough; ‘I think it would be foolish to say that there’s no risk of that.’ Had he left it at that no damage would have been done. However, he went on to list all the things that could cause that second dip: a renewed rise in unemployment, declining house prices, another banking crisis, a sovereign debt crisis, a new liquidity crisis in the private sector, tough fiscal tightening, higher levels of individual saving and lower consumer demand.

Looking at the financial spread betting data, the euro’s progress came largely as a result of investors’ dislike of the US dollar. Unusually, some weak US data (principally the sharp falls in new and existing home sales) sent the dollar lower. Since the beginning of the financial crisis it has tended to work the other way, with bad news for the global economy - wherever it comes from - sparking a rush for the perceived safety of the US dollar and Japanese yen. Last week’s experience suggests the dollar is no longer on that already short list.

If the ecostats from Euroland were adequate, Germany’s revised figure for second quarter GDP was more than adequate, with growth confirmed at 2.2%. Germany also eclipsed the wider euro zone with a two-point improvement in its services sector purchasing managers’ index (PMI). However, its manufacturing PMI was lower, together with both Euroland measures. German confidence, both among businesses and consumers, tended higher, although business expectations were less rosy in August than they had been in July. Consumer confidence in the euro zone as a whole improved by two points; that still left it at a negative 12 instead of -14.

Sterling and the euro both face challenges this week from the purchasing managers’ indices, an important barometer of how the manufacturing and services sectors are performing. The euro must also cope with the first revision to second quarter GDP, predicted to be unchanged with a quarterly expansion of 1.0%, and July’s retail sales figures, which could well show only anaemic growth.

Spread betting is a leveraged product. It carries a high level of risk to your capital and, as it is possible to lose more than your initial investment, it may not be suitable for all investors. Therefore, ensure you understand the risks involved and seek independent advice if necessary. The tax treatment of spread bets may be subject to change in the future

The above should not be construed in any circumstances as a recommendation or offer to sell or recommendation or solicitation of any offer to buy any security or other financial instrument.

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