Foreign Exchange Report : GBP EUR Dips on News of Second Bail-Out For Greece, But Greek Default Now Appears Inevitable

22 Jul 2011 at 6 AM - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP EUR Dips on News of Second Bail-Out For Greece, But Greek Default Now Appears Inevitable

The Pound Euro exchange rate (GBP EUR) is 1.1323. The Pound Dollar exchange rate (GBP USD) is 1.6312. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5038.

Details of the Eurozone’s plan for a second bail-out for debt-addled Greece were leaked to the press overnight, causing a rally in Asian equities.

The second bail-out will see the seventeen member states of the Eurozone, along with the IMF, commit a further €109bn to shore-up Greece’s finances. The plan will also force further losses on private investors, piling more pressure on the Eurozone’s already creaking retail banking sector.

European stock markets saw a strong move forward yesterday, in anticipation of the announcement of the agreement, with Madrid’s IBEX index faring particularly well, closing up by almost 3%, as market participants’ fears of an immediate Eurozone debt meltdown dissipated.

Elsewhere, increased global risk appetite caused the US Dollar to weaken in the markets, taking the GBP USD rate to above 1.6300 for the first time in five weeks.

The Euro saw significant support in the currency markets yesterday in anticipation of last night’s news, with the GBP EUR rate dipping to 1.1306 its lowest level for ten days. The pair continues to trade in the low 1.13s, however Europe’s single currency is now in a precarious state, as banking analysts believe that the ‘debt swap’, which will see private investors extend the term of their debt agreements with Greece, will be viewed by leading ratings agencies S&P and Moody’s as a ‘default’ by the troubled Hellenic state. The Euro is likely to come under pronounced selling pressure if/when the ratings agencies announce that they deem that a Greek default has taken place.

Yesterday’s data releases provided further potential for upside for the GBP EUR rate, with the German PMI Manufacturing survey for July showing a pronounced contraction from June’s figure, dropping from 54.6 to 52.1. This figure lessens the likelihood that the ECB will raise interest rates at next month’s policy meeting.

Meanwhile, yesterday morning’s UK Retail Sales numbers showed that British shop sales unexpectedly grew in June, providing some hope for investors holding Sterling-denominated assets.


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