Foreign Exchange Report : GBP EUR Rate Spirals as Investors Fear Partial Greek Debt Default, While GBP NZD Rate Hits 4-Week High on Poor NZ Trade Figures

Published: Monday, 26 September 2011 07:17 BST - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP EUR Rate Spirals as Investors Fear Partial Greek Debt Default, While GBP NZD Rate Hits 4-Week High on Poor NZ Trade Figures

The Pound Euro exchange rate (GBP EUR) is 1.1544. The Pound Dollar exchange rate (GBP USD) is 1.5439. The Pound Australian Dollar exchange rate (GBP AUD) is 1.6025.

European Central Bank officials have come under increasing pressure in recent weeks from non-EU policy-makers to step up their response to the burgeoning European sovereign debt crisis. These concerns were repeated over the weekend, when Head of the IMF, Christine Lagarde, called for action, stating that the organisation had enough funds to meet its current debt obligations to debt-riddled Eurozone nations, but that if debt contagion spread to other more significant European economies, then the IMF might not be able to offer help.

However, market rumours suggest that the EU-IMF is about to announce a bold rescue plan to provide help for Eurozone nations struggling to service their current debts. The package will significantly bolster its ability to offer bail-out assistance by increasing the funds available to the ECB’s bail-out fund, the European Financial Stability Facility (EFSF), from its current level of €440bn to €2tn.

The increase in emergency funding should cover all potential European debt scenarios in the short-to-medium term, causing a pick-up in investor sentiment towards the Euro. However, whispers emanating from Washington suggest that the IMF is proposing that Greece writes down 50% of its current debt obligations to private investors, a move which would place significant pressure on the European retail banking sector.

At the moment, the currency markets are focussing on the negative element of the rumoured IMF rescue plan, causing the Euro to give up ground. This has seen the GBP EUR rate gain over 1.5c from its Friday close in early trading today.

Elsewhere, the New Zealand Dollar has come under significant selling pressure overnight, following the release of domestic trade figures which showed that August’s trade monthly deficit was almost twice as wide as analysts had anticipated, at NZD641m. The Kiwi, along with the other high-yielding currencies including the Australian Dollar and the South African Rand, was already under pressure in the market as investors scaled back their exposure to risk over the past week over fears that the global economy is heading towards a slowdown. Last night’s New Zealand data saw the GBP NZD rate break through the 2.00 level for the first time since 23rd August. As recently as lat Monday, the pair had been trading in the high 1.80s, illustrating the shift in appetite for risk over the past week.


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