Monday, 3 May 2010

Problems in Greece, Weakness of the Euro, Retailer Benefits

Another successful Greek rescue package has been announced today, with the German government looking like they will back this proposal.  I'm sure many will not accept that this rescue package will become a reality until the money starts following.  The eurozone has so far supported the theory that currency union without political union is very hard to sustain.

I will be watching the foreign exchange markets closely over the next few days to see whether they are convinced that the proposals will become and reality and whether they can really work...or are just postponing the inevitable, a Greek debt default.

One benefit of the problems in Greece are that retailers should start to see the benefits of a stronger pound.  In the past six months the pound has strengthened by around 8% against the euro.Retailers have been struggling throughout the downturn for a number of reasons, and one of these was the weakness of the pound pushing up the price of imports.  This has hit retailer margins as they were forced to keep prices low in order to continue to attract customers.

It should be said that some retailers have been loving the weakness of the pound, particularly those in Central London who have been enjoying roaring trade as tourists from Europe and around the world came to the capital looking for cheap goods.

In addition those companies (generally not retailers) that have benefited from exporting goods will not be thanking the rise in the pound.

Nevertheless, the pound remains weak compared to historic standards and further strengthening over the next few years should be expected.  In the short term the problems in Greece and other eurozone countries will continue to have an impact on the relative value against the euro, whilst the outcome of the General Election and if there is a hung parliament will almost certainly weaken the pound as markets fear indecision and a lack of action of the deficit.

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