Foreign Exchange Report : GBP EUR Rate Plummets as Dexia Rescue Plan is Approved and Investors’ Eurozone Sovereign debt Fears Subside

11 Oct 2011 at 8 AM - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP EUR Rate Plummets as Dexia Rescue Plan is Approved and Investors’ Eurozone Sovereign debt Fears Subside

The Pound Euro exchange rate (GBP EUR) is 1.1467. The Pound Dollar exchange rate (GBP USD) is 1.5650. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5724.

Yesterday’s session in the currency markets was dominated by an improvement in investor sentiment towards the Euro. This improvement was driven by good news on both the sovereign debt and retail banking front, with Franco-Belgian banking giant Dexia announcing a rescue package and European policy-makers hinting at an imminent resolution to the Eurozone’s long, drawn-out debt crisis.

Concerns grew over Dexia’s balance sheet problems throughout last week, but these fears were put to bed with yesterday’s announcement that the troubled bank’s board had given clearance to a joint rescue plan, providing €90bn of loan guarantees, put forward by the French, Belgian and Luxembourg governments. The rescue plan will also see the Belgian government acquire Dexia’s Belgian retail banking unit for €4bn. The markets responded positively to the swift and decisive action to save the bank by the three northern-European governments.

Investors were further encouraged by yesterday’s assurances from France and Germany that they will be making ‘important changes’ to the way the Eurozone operates, following last weekend’s debt discussions between Chancellor Angela Merkel and President Nicolas Sarkozy. The leaders asserted that they were, "determined to do the necessary to ensure the recapitalisation of Europe's banks", and promised further details of how they propose to tackle Europe’s sovereign debt crisis prior to next month’s G20 Leaders’ Summit in Cannes. Commentators have speculated that the Franco-German plan may involve a beefing-up of the European Financial Stability Facility.

Positive data from the Eurozone’s predominant economic power added to yesterday’s tailwinds for the Euro, as August’s German export figures showed their first monthly increase for three months. Analysts had anticipated a 1.1% monthly increase in German exports, so it was a significant boost for the Euro when the figure printed at 3.5%.

All of these factors in combination elicited a pronounced strengthening of the Euro on the day yesterday, seeing the GBP EUR rate drop from its weekly open at 1.1631 to trade as low as 1.1452 during yesterday afternoon’s session.


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