Foreign Exchange Report : Slovakia Votes Down EFSF Extension Package, But GBP EUR Rate Holds Its Ground, Meanwhile US Senate Votes For Tariffs To Stem Chinese Imports

12 Oct 2011 at 7 AM - Written by John Cameron

STORY LINK Foreign Exchange Report : Slovakia Votes Down EFSF Extension Package, But GBP EUR Rate Holds Its Ground, Meanwhile US Senate Votes For Tariffs To Stem Chinese Imports

The Pound Euro exchange rate (GBP EUR) is 1.1415. The Pound Dollar exchange rate (GBP USD) is 1.5591. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5634.

In a major development which came late on during yesterday’s European session, Slovakia’s parliament voted against the proposed expansion of the European Financial Stability Fund, (EFSF), by a mere 21 votes.

Slovakia, the second poorest of the Eurozone nations, had been the last of the seventeen countries which uses the Euro to vote on an extension to the package. The other sixteen nation states had voted in favour of expanding the EFSF, (more commonly referred to as the Euro zone’s ‘bail-out fund‘). However, it came as no surprise that Slovakia’s ruling centre-right coalition failed to garner sufficient support to pass the motion, following comments from the leader of the Freedom and Solidarity party, (a junior coalition member), stating that its members would be instructed to vote ‘no’.

The Slovakian EFSF vote had been linked to a vote of confidence by the ruling coalition government, meaning that a new government will have to be formed prior to a second vote taking place. However, this process is likely to be swift and it is anticipated that the second ballot will deliver the ‘yes’ vote required by Eurozone policy-makers in order to beef-up the EFSF. Optimism over a rapid turnaround by Slovakia’s politicians has meant that the Euro has avoided incurring any significant losses in the currency markets, seeing the GBP EUR and EUR USD rates hold steady so far during today’s session.

Meanwhile, last night saw the US Senate pass a Bill which will allow America to impose tariffs on imports from countries which it feels are artificially weakening their currency in order to promote trade. The move appears to have been specifically aimed at stemming the flow of cheap imports from China, which are pricing US manufacturers out of the domestic market. This move is the latest example of individual states acting in a protectionist fashion, following direct interventions by the Japanese and Swiss central banks to actively weaken their currencies in recent months. Such self-interested moves away from free trade tend to be poorly received by investors, so last night’s Senate vote has the potential to cause a global scaling back of appetite for risk, which would see the US Dollar strengthen.


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