Foreign Exchange Rates – EUR/USD Rallies on Eurozone Debt Agreement While GBP/EUR Drops to Four Month Low

14 Mar 2011 at 10 AM - Written by John Cameron

STORY LINK Foreign Exchange Rates – EUR/USD Rallies on Eurozone Debt Agreement While GBP/EUR Drops to Four Month Low

The Euro Dollar exchange rate (EUR/USD) is 1.3956. The Euro Pound exchange rate (EUR/GBP) is 0.8671.

European leaders and their officials worked into the early hours of Saturday morning in order to hammer out an agreement on how the Eurozone will deal with its ongoing sovereign debt problems.

The likelihood of a deal being reached looked minimal when the schedule for Friday’s Eurozone leaders’ summit was released; the sovereign debt discussions had been shoe-horned into a brief afternoon session, with discussions on the Libyan crisis taking centre-stage.

However, the markets responded positively when details of the package eventually emerged. Measures included expanding the European Financial Stability Fund (EFSF) to give it a lending capacity of €440bn. The EFSF will also be allowed to lend in the primary credit market, (i.e. it will be allowed to make funds directly available to sovereign states). Leaders also agreed to cut the interest rate for loans to Greece by 1.00%.

The EUR/USD rate looks likely to once again test the key 1.4000 level which it last visited briefly on 7th March. EUR/USD traded as low as 1.3752 during Friday’s session as the Greenback enjoyed significant support in the aftermath of the Japanese earthquake and tsunami. However, Dollar strength is now receding as market participants regain their composure and re-focus on problems in the Middle East and Libya, which could cause further upward movement for global oil prices, serious hurting the Dollar.

Meanwhile, GBP/EUR has traded down to 1.1504 today, its lowest level since 5th November, as investors respond positively to the Eurozone sovereign debt bailout package and continue to factor in a likely Eurozone rate hike in April. Expectations of a UK interest rate rise in the near term remain low.

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