Foreign Exchange Report : GBP EUR Rate Trades Up as Italian and Spanish Debt Yields Reach Record Levels, USD and CHF Gain Support

Modified: Tuesday, 12 July 2011 06:21 BST - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP EUR Rate Trades Up as Italian and Spanish Debt Yields Reach Record Levels, USD and CHF Gain Support

The Pound Euro exchange rate (GBP EUR) is 1.1363. The Pound Dollar exchange rate (GBP USD) is 1.5866. The Pound Australian Dollar exchange rate (GBP AUD) is 1.4964.

The Euro suffered another torrid day on the markets yesterday as fears heightened that the Eurozone’s sovereign debt situation is set to escalate.

The Eurozone’s seventeen Finance Ministers convened in Brussels yesterday for a two day debt summit as concerns grew that further Eurozone states may be dragged into the ongoing sovereign debt crisis, as Italy’s bond yields grew to their highest level since the introduction of the Euro in 1999. Spanish debt yields also reached record levels against safe-haven German bund yields as investors became increasingly fearful that Greece’s debt problems may spread to neighbouring nations.

German Chancellor Angela Merkel stepped in to ease the pressure on Italy, stating that she had ‘full confidence’ that Italian policy-makers would pass the austerity measures necessary to shore-up Italy’s ailing economy.

Meanwhile, rumours abounded in the markets that the Eurozone Finance ministers would be discussing in detail France’s proposal to extend the term of 70% of Greece’s debts to 30 years in order to afford the troubled Hellenic state some breathing space. The market reacted badly to these whispers, as leading ratings agencies S&P and Fitches have consistently stated that such a Greek debt ‘roll-over’ would constitute a default, in their eyes, plunging the Eurozone into a full-blown debt catastrophe.

Fears of such an outcome caused the yields on 2 year Greek bonds to rise above 31% on the day yesterday, signalling the deep concerns that investors hold regarding Greece’s future prospects.

Elsewhere, the traditional safe-haven currencies fared well on the day yesterday, with the Swiss Franc, US Dollar and Yen all benefiting as global equities dropped. The downward move in stocks continued overnight, with Toyko's Nikkei 225 and Hong Kong's Hang Seng both registering significant losses. The dip in global risk appetite has seen the GBP USD rate drop from yesterday's open of 1.6025 to 1.5857 overnight, the pair's lowest level since the end of January. Further downside is possible today for GBP CHF and GBP USD if UK, European and US equities continue to trend downwards.


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