Currency Exchange Rates Insight: The Key Majors GBP,USD & EUR Face Uncertainty on Fears of Global Debt Contagion

29 Jul 2011 at 9 AM - Written by John Cameron

STORY LINK Currency Exchange Rates Insight: The Key Majors GBP,USD & EUR Face Uncertainty on Fears of Global Debt Contagion

The Pound Euro exchange rate (GBP EUR) is 1.1432. The Pound Dollar exchange rate (GBP USD) is 1.6315. The Pound Australlian Dollar exchange rate (GBP AUD) is 1.4898. The Pound Yen exchange rate (GBP JPY) is 126.45

The headline events for today are the Q2 GDP figure from the US due at 1230 GMT and the vote from congress on the current US Debt limit. It is likely that we will see a day of volatility ahead we would remain Dollar negative moving into the weekend.

The argument for a third round of Quantitative Easing in the US has not gone away and in the coming weeks we would expect to see more talk of another round of stimulus if the headline figure comes in below the par of the expected annualised 1.8% grow rate today

The Euro has suffered in trade throughout the last 48 hours on worse than expected German unemployment, a drop in economic sentiment and weak appetite at an Italian government bond auction. The fear of contagion in the Euro Zone has not gone away and uncertainty is likely to slow any major Euro advance in trade over the next few weeks.

The European Sovereign Debt crisis continues to play a major part in determining the Euro's trading direction. In the short term the ECB has measures in place to maintain stability, however with a liquidity demand of €85Bn over the next 3 months it is clear that problems are escalating. We would argue that European stability could only be maintained in the short term. Moving into the latter half of 2011 it wouldn't be surprising to see increasing problems with debt contagion as funding requirement increase.

The western markets are closely linked and if the US debt crisis leads to a technical default fear will spread back to Europe and we might expect to hear talk Global debt contagion.

The Pound hasn't had the best of weeks yet has benefited from a diversion of focus through market distraction focused on larger events. The CBI report dropped to a 13 month low and consumer confidence slid to an April low. The outlook for the UK economy is still uncertain with anaemic growth conditions likely for the foreseeable future.

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