Foreign Exchange Insight : GBP EUR Rate Recovers as Eurozone Data Disappoints and Portuguese Debt is Downgraded to ‘Junk’ Status

6 Jul 2011 at 6 AM - Written by John Cameron

STORY LINK Foreign Exchange Insight : GBP EUR Rate Recovers as Eurozone Data Disappoints and Portuguese Debt is Downgraded to ‘Junk’ Status

The Pound Euro exchange rate (GBP EUR) is 1.1126. The Pound Dollar exchange rate (GBP USD) is 1.6081. The Pound Australian Dollar exchange rate (GBP AUD) is 1.4994.

The Euro lost ground against the safe-haven Swiss Franc and US Dollar for the first time in five trading sessions yesterday, through a combination of weak data releases and renewed concerns regarding the Eurozone’s debt situation.

The day started badly for Europe’s single currency with the release of the German PMI Services survey for June, which showed a considerable drop from May’s figure of 58.3 to print at 56.7 - analysts had been expecting the number to show at the same level as in May’s.

European data continued to be of a weak nature as the session progressed, with the whole-of-Eurozone PMI Composite survey coming out below expectations and May’s Eurozone Retail Sales figure showing an annualised contraction of 1.9% in European shop sales; analysts had been expecting a far smaller dip in sales.

Meanwhile, leading ratings agency Moody’s yesterday downgraded Portugal’s national debt by four notches from Baa1 to Ba2, meaning that the troubled Iberian state’s debts are now given ‘junk’ status. Moody’s accompanying statement suggested that Portugal may require a second EU-IMF bail-out before it can return to the money markets for funding.

Elsewhere in the Eurozone, Greece’s debt woes refused to abate, as S&P and Moody’s warned investors in the last 24 hours that current plans by Eurozone retail banks to ‘roll-over’ Greece’s debt commitments would be viewed as ‘selective default’. Any such assessment by the ratings agencies would cause severe selling pressure on the Euro.

With the Euro experiencing considerable downside and the UK PMI Services Sector survey for June showing a small improvement on May’s number, the GBP EUR rate traded up to 1.1145 yesterday, having visited the low 1.10s on Monday. With the market pricing-in a 25 basis point hike in Eurozone interest rates tomorrow and rumours circulating that the ECB may be considering a 50 basis point raise, the potential for further pronounced upside for the GBP EUR pair exists if the ECB opts not to further tighten monetary policy.


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