Foreign Exchange Report : GBP EUR Rate Rises as Questions Grow Over Eurozone Debt Bail-Out Package, While Japanese Authorities Intervene to Weaken the Yen

31 Oct 2011 at 9 AM - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP EUR Rate Rises as Questions Grow Over Eurozone Debt Bail-Out Package, While Japanese Authorities Intervene to Weaken the Yen

The Pound Euro exchange rate (GBP EUR) is 1.1444. The Pound Dollar exchange rate (GBP USD) is 1.6019. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5181.

Today marks the final day in office for European Central Bank President Jean-Claude Trichet. Trichet has held the top job at Europe’s central bank since 2003 and has developed a reputation for a consistently hawkish stance on inflation during this period.

In the last couple of months, the anti-inflationary tone of Trichet’s public comments has eased very slightly, as concerns over the growth prospects for the Eurozone entered his thinking. However, the French Civil Servant has reverted to type for his valedictory statement, commenting that he felt that Eurozone inflation will ‘remain very low’ for at least the next decade.

On a less positive note, Trichet also warned that the three-point agreement to tackle the region’s debt crisis, which was reached at last Wednesday’s Eurozone leaders’ summit, must be adhered to. The summit yielded an agreement to bolster the Eurozone’s bail-out fund to €1tn, however some analysts have responded cynically to this development, questioning where the additional €600bn is going to come from.

The same analysts have also pointed out that the proposal for retail banks to allow Greece to write off up to 50% of its debt commitments is voluntary – when it comes to the crunch, it is feared that these banks may prove reluctant to keep to the arrangement.

Concerns over the workability of the Eurozone’s plan to tackle its debts has seen the GBP EUR rate reject the 3-week low of 1.1323, which it tested last Friday, in early trading this week.

Elsewhere, the Bank of Japan has once again actively intervened in the currency markets within the last 24 hours, in an attempt to weaken the Yen, which has been heavily supported over the past two years. The Yen has weakened by almost 5% against the US Dollar in early trading today, in response to the action.

The Japanese authorities are the latest in a line of governments to actively intervene in the currency markets, following interventions by the Swiss and Turkish authorities. The market generally dislikes central banks acting out of self-interest, preferring concerted action. This raises the potential for the Greenback to gain support over coming sessions, as investors seek out a safe haven.


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