Foreign Exchange Report : GBP USD Rate Holds Steady Despite Obama’s Announcement of Compromise US Debt Deal to Avoid US Default

1 Aug 2011 at 6 AM - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP USD Rate Holds Steady Despite Obama’s Announcement of Compromise US Debt Deal to Avoid US Default

The Pound Euro exchange rate (GBP EUR) is 1.1423. The Pound Dollar exchange rate (GBP USD) is 1.6446. The Pound Australian Dollar exchange rate (GBP AUD) is 1.4885.

US President Barack Obama announced overnight that negotiations between warring Democrat and Republican leaders had yielded an agreement on cutting the US deficit, allowing the world’s largest economy to raise its debt limit before Tuesday’s deadline to avoid default.

Asian equities markets have received the news with massive relief, seeing Tokyo’s Nikkei 225 index rise by almost 2% following the announcement. This movement is expected to be replicated when European and North American share markets re-open later today, signalling a sharp upward shift in global appetite for risk.

The US debt deal still needs to be ratified by Congress, but political commentators suggest that this will be a formality now that leaders from both side of the US political divide have reached common ground on how to proceed with measures including $1tn of government spending cuts over the next decade.

The US Dollar gained some support immediately after Obama’s announcement, with the GBP USD rate pulling back from 1.6475, (its highest level since the end of May), to trade back below 1.6450. However, the Greenback could be in store for renewed selling pressure later today if Western equities markets follow the same pattern as their Asian counterparts and make considerable gains. Friday afternoon’s disappointing US Q2 GDP growth figure, which raised doubts over the strength of the US’s ongoing recovery, may also cause Dollar downside.

Elsewhere, the Euro suffered a poor week in the markets last week, seeing the GBP EUR rate recover from a weekly low in the 1.12s to trade as high as 1.1449. Friday afternoon’s statement from leading credit ratings agency, Moody’s, announcing that it was placing Spain’s credit rating ’under review’ has increased pressure on Europe’s single currency. Further negative news releases regarding the Eurozone’s ongoing sovereign debt crisis this week could see the GBP EUR rate test its 5-month high of 1.1612.


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