Foreign Exchange Insight : Euro Weakens on Greek Debt Default Fears as GBP USD Rate Breaks Down to New 8-Month Low

19 Sep 2011 at 9 AM - Written by John Cameron

STORY LINK Foreign Exchange Insight : Euro Weakens on Greek Debt Default Fears as GBP USD Rate Breaks Down to New 8-Month Low

The Pound Euro exchange rate (GBP EUR) is 1.1495. The Pound Dollar exchange rate (GBP USD) is 1.5738. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5337.

This is shaping up to be a pivotal week for Europe’s single currency as Greece’s debt problems appear to be coming to a head.

The markets were unsettled by the meeting of Eurozone finance ministers which began in Poland on Friday. The meeting was expected to rubber-stamp the next tranche of emergency funding for Greece, however investors were extremely surprised when a statement issued by the finance ministers stated that they would be deferring any decision to release the €8bn until October.

Greek Prime Minister George Papandreou reacted to the announcement by cancelling his trip to the US which was penned-in for this week in order to hold emergency talks with his cabinet. Papandreou had been scheduled to meet with IMF officials and attend the UN General Assembly.

Market rumours suggest that the Greek government is coming under pressure from lenders to shed some 20,000 public sector jobs in order to keep to the terms of its bail-out. It seems likely that the Greek cabinet’s emergency talks will deal with this matter and also with comments from Germany’s Finance Minister Wolfgang Schäuble, who stated over the weekend that the time has come for Greece to decide whether it wishes to remain in the Euro.

Greece’s current bunker mentality was summed up by the country’s Finance Minister Evangelos Venizelos earlier this morning when he commented that Greece has been "blackmailed and humiliated" by its debt crisis.

The developing Greek situation has caused the Euro to weaken in early trading this week. Meanwhile, global risk appetite has dipped, with oil prices heading lower since the markets re-opened last night. The GBP USD rate dropped to a new 8-month low in early trading this morning as investors scaled back their appetite for risk. With the ‘lows getting lower’ and the ‘highs getting lower’, the GBP USD pair is showing the signs of being in a classic downtrend, so further downside is possible as news breaks throughout the week from Greece.


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