Foreign Exchange Report : GBP USD Rate Steady as Italy Votes to Tackle ‘Monster Debt’, Euro Weakens Ahead of Bank Stress Tests

15 Jul 2011 at 8 AM - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP USD Rate Steady as Italy Votes to Tackle ‘Monster Debt’, Euro Weakens Ahead of Bank Stress Tests

The Pound Euro exchange rate (GBP EUR) is 1.1426. The Pound Dollar exchange rate (GBP USD) is 1.6124. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5144.

The Eurozone’s ongoing sovereign debt crisis dominated the headlines yesterday and once again market participants focussed on Italy’s debt situation, as the Italian Senate voted in favour of a stringent austerity package which would see cuts of €48bn to Italy’s budget over the next 36 months.

Italy’s Finance Minister Giulio Tremonti predicts that the cuts will eradicate Italy’s ‘monster debts’, allowing Italy to balance its budget by the year 2014.

The market was encouraged by these measures, viewing them as a positive response to the IMF’s calls earlier in the week for Italy to action ‘decisive implementation’ of spending cuts. However, the GBP EUR rate failed to drop significantly following the vote, as the measures still need to be ratified by Italy’s lower house later today.

Elsewhere, the US Dollar saw some support during yesterday’s afternoon session, which leading the GBP USD rate to briefly dip back below the 1.6100 level, as it touched 1.6095. Support for the Dollar was provided by comments from Fed Chairman Ben Bernanke suggesting that a third tranche of quantitative easing in the US was far from the foregone conclusion that analysts had thought following his speech to Congress on Wednesday. The Dollar also benefited from improved investor sentiment following the Italian Senate’s vote in favour of stringent austerity measures.

Today’s session is likely to be dominated by ongoing concerns over Eurozone and US sovereign debts, with leading ratings agency S&P issuing a statement overnight that there was a 50% chance that it would downgrade US debt from its current AAA status if US policy-makers did not rapidly reach a consensus on raising the US’s debt ceiling.

Another key release today comes at 1700hrs BST, with the results of the European Banking Authority’s latest Stress Test on ninety leading European retail banks. With reports suggesting that the terms of the test will be more stringent than previous tests, banking analysts are expecting up to fifteen European banks to fail. If over fifteen fail, then there is potential for downside for the Euro, which could see the GBP EUR rate approach May’s high of 1.1612.


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