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Hopes rise that Spain will ask for aid

  The Euro has steadied against the US Dollar after speculation grew that Spain is close to requesting aid.

The single currency has spent most of the week in decline against a basket of currencies as the markets grew increasingly impatient with Spain’s indecisiveness over whether it would request financial assistance from the European Central Bank. Traders believe that the Euro will continue to struggle for the foreseeable future unless Spain makes a move towards seeking a bailout.

“It is just a matter of time before Spain applies for financing in the coming weeks and that will be euro positive. But we think that will be the last piece of euro-positive news,” said Carl Hammer, chief currency strategist at SEB in Stockholm.

“We are coming to the point where most of the good news for the euro is discounted.”

The International Monetary Fund today revealed that the amount of cash needed by Spanish banks was lower than what the European Union and Spain’s own government feared.

“The number is lower than what was feared initially by the European and by the Spaniards, the expectation is that it is going to be much closer to the IMF financial sector assessment forecast than the €100bn (£80bn) that was put on the table as a broad cushion for restructuring of the Spanish banking sector,” said IMF chief Christine Lagarde.

The news could see Spanish premier Mariano Rajoy delay his decision on whether to ask for further aid. He is hoping that the countries banks can be recapitalised by the new European Stabilisation Mechanism. Spain’s banks, saddled with massive bad loans from the collapse of the country’s real estate sector, are currently being propped up by a lifeline of capital from the government and liquidity from the European Central Bank.

“There are two key questions regarding the Euro, When is Spain going to ask for help, and will Greece be given the time and the money to effectively disappear off the radar screens for another six months or so?” said Gareth Berry, G10 FX strategist for UBS in Singapore.

One thing is clear, the Spanish have to hurry up and come with a clear decision if the Euro is to remain at its current level against the Dollar. If they delay further and drag the situation on for several weeks then the currency is sure to weaken once again.

The Pound to Euro exchange rate is currently trading at 1.2494

The Pound to US Dollar exchange rate is currently trading at 1.6278

The Pound to Australian Dollar exchange rate is currently trading at 1.5487

The Euro to US Dollar exchange rate is currently trading at 1.3026

The Euro to Pound exchange rate is currently trading at 0.8002

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