Lesser but important events were overshadowed by the Federal Reserve meeting this week. The euro which has climbed to recent highs touching the unthinkable 1.38 level has retreated to 1.3709 as the US dollar recovers, although it was supported by some data that met with a bit of happiness in the eurozone. Spain emerged from its two year recession but the strong euro can turn good to bed quickly as the Spanish economy tries to reinvent itself. Record exports are the main reason Spain on Wednesday was able to report 0.1% growth of its gross national product in the three months through September after nine straight quarters of contraction. While that is hardly enough to make much of a dent in the country’s staggering unemployment rate anytime soon, the trend is going in the right direction. Spain’s growing international sales, with exports of goods up by nearly 7% this year, are all the more impressive because even powerhouse Germany has seen recent weakness in sales abroad. The latest figure also beats the average growth during the boom years, before the global financial crisis hit. Export growth could be jeopardized, however, by the roughly 8% rise in the value of the euro against the dollar since July, as it is making products sold outside the euro zone more costly. The increase in exports has also seen a small drop in the huge Spanish unemployment rate, which now stands at 26%
The euro’s rise is “worrisome because it goes in the opposite direction of Spain’s entire export-led recovery strategy,” said Robert Tornabell, an economist at Spain’s Esade Business School. He said he was already aware of a Spanish factory that has told workers it will have to cut their wages, in part, to compensate for the stronger euro according to WSJ.
The US dollar added 11 points this morning and continues to climb towards the 80 price level which still remains low for the greenback which usually trades in the 81-82 range. The Great British pound is trading at 1.6020 down by 21 points as it continues a steady decline again the greenback. The pair as recently as last week was threatening to trade above the 1.63 price level when a bit of weak economic data turned investors away. A generally disappointing few days of UK data releases saw the Pound drift lower against almost all of the other sixteen most actively traded global currencies. An early reading of October’s UK Retail Sales from the CBI revealed that British shop sales have flatlined this month, adding to the recent impression that the tentative domestic economic recovery is running out of steam. This impression was added to by the latest Land Registry figures which suggested that the average UK property price increased by a year-on-year 3.4% over the past twelve months. This is only marginally above the annualized increase in general consumer prices, putting paid to the notion that a housing sector bubble is underway in Britain.