PracticeConsultingOpinion – the corridors of power …

Opinion - the corridors of power ...

Ernie Reading is a happy man, or to be more precise, a happier man. As managing director of Tensator, a spring manufacturing company based in Milton Keynes, the weakness of the euro has been a constant thorn in his side. Now it seems to be recovering and for Mr Reading and his company, that makes all the difference.

‘We export to Europe about 50 or 60% of our product,’ he says, ‘the reality is that we have invoices in their currencies and therefore we have taken the hit – and there has been a dramatic hit.

‘People don’t realise it has been close to 40% and that off your bottom line is a hell of a lot of money. But when the euro gets stronger, it will help us enormously.’

And for the last two months the euro has been recovering. Its supporters would like to claim the impressive performance of euroland’s economy is the reason, but it isn’t the whole story. Last year, Europe’s economy grew at almost 3.5% but with little sign of the euro following suit.

The euro started to recover about two months ago – not because the foreign exchange markets suddenly realised what was happening in Europe but because of what happened in America. ‘Towards the end of last year the world changed, the US economy appeared to be slowing,’ says Alison Cottrell, European Policy analyst at UBS Warburg.

‘The currencies reacted to this change in economic perceptions, the dollar slipped and the euro revived.’

Whether the euro will recover more of the ground it has lost since its launch over two years ago also depends to a large extent on what happens in America. Whether the US economy slides into a full-blown recession or just slows down to more sustainable levels of growth will make all the difference.

But one thing has changed, the markets now know the euro doesn’t always have to fall. That makes judging its next move more difficult. The single currency has stopped being a one-way bet.

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