Cheap Currencies are proving to be supportive for Business
Posted on April 9, 2010 by Shay Greenberg for Luckyroom.com
Keeping interest rates at historically low levels, coupled with the decline of the Euro and the Sterling, offers support to companies of the Eurozone and Britain as they are expected to show strong financial results for the first quarter. If the positive forecasts for profitability is confirmed, European shares will remain in orbit for increases until at least mid year. Shares of the old continent, which according to the FTSEurofirst 300 index has strengthened 69% in contrast to the historically low levels which had stumbled in March 2009 are seeking for new props at a time when growth figures of the Eurozone countries are not encouraging for investors. A first taste of what we can expect this quarter by European companies can be found in the results of the fourth quarter of American companies.
This is because the U.S. economy is usually a slight “edge” in the economic cycle. According to data from Thomson Reuters More than 70% of U.S. companies announced results for the fourth quarter of 2009 exceeding the expectations of analysts. The recovery in corporate profitability has began certainly in Europe too, with 50% of businesses communicating better than expected results for the fourth quarter. This figure may increase further in communications for the first quarter and expected strong results for the second quarter. For the second half forecasts might be more difficult as central banks will withdraw more and more of the extraordinary liquidity measures at a time when European economies and firms may downgrade speeds.
For the full year, however, UBS estimates that the profits of European companies will register an increase of 25% after falling 19% in 2009. The euro has fallen 7% this year against the dollar amid growing concerns about the problems of Greece and the other weak links in the Eurozone, while the British pound record loss of 6% against the dollar over the same period. The “cheap” currencies favor companies and especially exports, making their products more competitive.
