Portugal’s bail-out is having little effect on the buoyant euro. The currency is still performing relatively strongly in the currency markets, since the bailout was long expected and the currency markets had already priced in any impact it would cause.
The worry for Europe at the moment is the possibility of Portugal defaulting on its debt, which would mean the banks of nearly every Eurozone nation having to write off millions of euros owed by the Portuguese government.
The banks would then need to recapitalise in order to continue their much-needed lending activities. This would then see the euro seriously weaken against the major currencies, and those poised to exchange their pounds for euros would capitalise.
Spain is still a concern for the eurozone as, along with Italy, it seems the most likely to be the next to fall foul of market sentiment. However, the Spanish government is taking positive steps to deal with the deficit which has restored some confidence.
Germany and France will be able to live with the impact that Portugal has had on the eurozone, as long as the Portuguese do not default on their debt.
The euro is also strong against the dollar, along with just about every other major currency. The US is having a very tough time as Obama is coming under increasing pressure to deal with the country’s enormous $14.29 trillion national deficit.
Sterling continues to be depressed following a string of mixed economic data. This inconsistency means confidence in the pound is low.
Consumers in the UK will continue to suffer and UK expats will need to tighten their belts, particularly in Portugal as likely tax rises will squeeze income, compounded further by the weak pound against the euro.