Foreign Exchange Rates - Pounds to Dollars, GBP USD Exchange Rate Drops as China Tightens Monetary Policy

18 Apr 2011 at 11 AM - Written by John Cameron

STORY LINK Foreign Exchange Rates - Pounds to Dollars, GBP USD Exchange Rate Drops as China Tightens Monetary Policy

The Pound Euro exchange rate (GBP EUR) is 1.1354. The Pound Dollar exchange rate (GBP USD) is 1.6268.

Officials from the IMF, ECB and European Commission are meeting in Lisbon later today to agree on the precise terms of Portugal’s €80bn bail-out, which is due to be completed by the middle of next month.

Analysts have predicted that Portugal’s enforced austerity measures will have to be more lenient than those which Greece was forced to accept when it was granted a bail-out. However, with two German officials leading the EU delegations and support for the financial assistance package in Germany key, there is the possibility that Portugal will be forced to accept overly-stringent terms. A failure by Portugal to keep to the terms of its bail-out, following Greece’s recent troubles, would be extremely damaging for the future of the Euro.

Elsewhere in Europe, the ultra-nationalist ‘True Finn’ party has won almost 20% of the votes in Finland’s General Election, putting the party just behind the more established Social Democrats and conservative NCP in the standings. ‘True Finns’ have strongly opposed recent European Union bail-outs and under the national constitution, Finland‘s parliament is one of the few to hold a vote on whether to approve financial aid packages to EU states. If ‘True Finns’ were to make use of their power of veto, it might prove increasingly difficult for future Eurozone bail-outs to be approved in Brussels.

Meanwhile, Chinese policy-makers have acted to tighten monetary policy over the weekend, following last week’s higher-than anticipated inflation figures. The People’s Bank of China announced that reserve ratios for domestic retail banks were to be upped by 0.5% to 20.5%, meaning that Chinese banks will have less funds available to lend. This is the seventh time since last October that China has increased its reserve ratio, illustrating the central bank’s determination to control rising prices.

Eurozone sovereign debt concerns and China’s tightening of monetary policy may precipitate a dip in global risk appetite at the start of this week’s session, causing a possible strengthening of the USD.

Finally, whilst the national debts of Eurozone states dominate the headlines, there is potential that the GBP EUR rate will re-trace further upwards and away from its near-term low of 1.1205, which was reached last Wednesday.

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