Foreign Exchange Report : GBP USD Rate Breaks Back Above 1.60 as Investor Sentiment Picks Up Ahead of Tomorrow?s Emergency Eurozone Debt Summit, GBP NZD Rate Also Up

Modified: Tuesday, 25 October 2011 09:31 BST - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP USD Rate Breaks Back Above 1.60 as Investor Sentiment Picks Up Ahead of Tomorrow?s Emergency Eurozone Debt Summit, GBP NZD Rate Also Up

The Pound Euro exchange rate (GBP EUR) is 1.1488. The Pound Dollar exchange rate (GBP USD) is 1.5975. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5258.

Once again today’s European session begins with investors focussing on one currency – the Euro. Discussions between European policy-makers, which began at the end of last week, are ongoing, with a significant announcement expected to emanate from tomorrow’s Eurozone Finance Ministers’ Emergency Debt Summit.

Although the content of the European talks is unknown, analysts suggest that the talks are centred on the size of the potential ‘haircut’ that retail banks are willing to accept on their holdings of Greek bonds. Market whispers have suggested that banks holding Greek bonds may be asked to accept as much as a 60% reduction in the market value of their holdings in order to allow Greece to avoid an all-out default.

Such a move would place massive pressure on several European banks; the French retail banking sector is particularly exposed to Greek bonds, with Societe Generale considered particularly 'at risk'. Eurozone policy makers face a difficult task in balancing the need for Greece to avoid a complete debt capitulation whilst not sending the European banking sector into the abyss.

At this stage, the market appears optimistic that tomorrow’s summit will strike the correct balance, as global stocks have made respectable gains since this week’s session opened on Monday morning Asian time. This move signals a burgeoning appetite for risk from institutional investors which has seen the US Dollar weaken significantly, causing the GBP USD rate to break back above the key 1.6000 level this week for the first time since 8th September.

Elsewhere, the New Zealand Dollar has come under selling pressure against the majors overnight, in spite of the forward move in global appetite for risk, thanks to lower-than-anticipated domestic CPI Inflation Data. This has caused a downward revision in investors’ New Zealand interest rate expectations.


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