Foreign Exchange Report : GBP EUR Rate Up Again as Greece Announces That it is Set to Miss EU/IMF Deficit Reduction Targets

3 Oct 2011 at 9 AM - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP EUR Rate Up Again as Greece Announces That it is Set to Miss EU/IMF Deficit Reduction Targets

The Pound Euro exchange rate (GBP EUR) is 1.1642. The Pound Dollar exchange rate (GBP USD) is 1.5564. The Pound Australian Dollar exchange rate (GBP AUD) is 1.6123.

Greece’s government stunned the markets yesterday with the release of figures which projected that it will miss its EU/IMF deficit reduction targets for both 2011 and 2012.

The data showed that Greece expects to reduce its deficit as a percentage of its annual GDP from last year’s 10.5% to 8.5% this year, missing the EU/IMF’s 7.6% target which it needs to meet in order to qualify for its next tranche of emergency bail-out funding from the EU and IMF.

Greece’s administration expects 2012’s budget deficit to be reduced to 6.8% of the country’s GDP versus its commitment to reduce it to 6.5%.

The projections caught the market on the back foot as Finance Minister Evangelos Venizelos had publicly stated, as recently as last month, that he was confident that all targets would be met and that Greece would qualify for its next tranche of bail-out funds.

German Finance Minister Wolfgang Schäuble had responded to Venizelos’ comments by stating that Greece had no further ‘wriggle room’ if it wanted additional emergency funding. Schäuble re-iterated his hard-line stance yesterday by warning that the German government will not be contributing any further funds to the EU’s bail-out fund.

The situation remains febrile, with Eurozone Finance Ministers set to meet in Luxembourg later today. Comments are likely to emerge from Luxembourg regarding a potential extension of the EU/IMF’s bail-out package and Greece’s ability to access further emergency funding.

The market’s immediate reaction to yesterday’s announcement by Greece’s Finance Ministry was to turn against Europe’s single currency. This saw the GBP EUR rate climb in early trading this week to come within half a cent of its highest level since March 2011, to touch 1.1675 overnight.

Uncertainty regarding Greece’s ongoing ability to avoid an all-out default has seen Asian stock markets follow the lead set by their US counterparts on Friday to register significant losses overnight. European and UK stock markets look to be heading the same way already today with London’s FTSE 100 opening over 2% down from Friday’s close and Eurozone indices registering even greater losses. The dip in global appetite for risk has caused heavy selling pressure on the high yielding currencies, with the GBP AUD rate trading at close to 1.6200 overnight and the GBP NZD rate breaking the 2.0400 level. Further upside is possible for these pairs later today if there is bad news from Luxembourg.


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