Foreign Exchange Report : GBP EUR Rate Spirals as Greek Debt Woes Escalate, While USD Strengthens

Modified: Monday, 23 May 2011 05:45 BST - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP EUR Rate Spirals as Greek Debt Woes Escalate, While USD Strengthens

The Pound Euro exchange rate (GBP EUR) is 1.1513. The Pound Dollar exchange rate (GBP USD) is 1.6201.

Movements in the currency markets leading up to Friday’s close were dominated by one story - Greece’s ability, (or potential inability), to repay its sovereign debt.

The GBP EUR exchange rate opened the day at 1.1335 and traded down as low as 1.1314 in early trading as the prevalent down-trend looked set to continue.

However, market sentiment towards the single European currency radically altered when Norway announced that it was withholding a $42m grant to Greece due to the debt-addled state’s failure to keep to the terms of the aid agreement.

The Euro came under further pressure later in the session when leading Rating’s Agency, Fitch, downgraded Greece’s debt from B+ to BB+, stating that the downgrade was caused by Greece’s failure to create a credible plan for paying off it’s extensive borrowing commitments.

The Euro broke to new daily lows against the other majors when French Finance Minister Christine Lagarde commented that France might support a re-structuring of Greece’s debt. She went on to echo Fitch’s sentiments when she stated that Greece was in danger of defaulting on its debts if it did not take action.

The parlous state of Greece’s finances saw the GBP EUR exchange rate trade up to 1.1487, eventually closing slightly lower at 1.1462.

The news emanating from the Eurozone also affected levels on other currencies as Friday’s session progressed. The S&P 500 closed down by 0.77% as risk sentiment ebbed on Greek sovereign debt fears. This caused the US Dollar to gain support in late trading, with GBP USD dipping below 1.6200 at one point.


If risk aversion continues to grip investors, then today may see further support for the Greenback and an upward move in the GBP AUD, GBP NZD and GBP ZAR exchange rates.


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