Foreign Exchange Report : GBP EUR Rate Soars as Italian Bond Yields Jump and Greece Announces a Bail-Out referendum

1 Nov 2011 at 9 AM - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP EUR Rate Soars as Italian Bond Yields Jump and Greece Announces a Bail-Out referendum

The Pound Euro exchange rate (GBP EUR) is 1.1659. The Pound Dollar exchange rate (GBP USD) is 1.6001. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5437.

The Euro endured a torrid day on the currency markets yesterday as investors showed signs of losing confidence in the three-point bail-out plan, which was agreed by Eurozone leaders last Wednesday.

The session began badly for Europe’s single currency with the release of German Retail Sales data for September, which came out significantly worse than anticipated, printing at an annualised 0.3%. showing a significant decline from August’s 2.5% growth.

Things got worse for the Euro as the day progressed, as the debt yields paid by the Italian government soared . The yields on 5-year Italian government bonds rose to their highest level since the instigation of the Euro, whilst 10-year yields rose by 0.17% to break the 6% barrier. Bond market participants were unimpressed by the weak level of demand for Italian bonds at last Friday’s auction; given the state of Italy’s public finances, Italian bonds are likely to come under further selling pressure as the week progresses.

The Euro leaked further support towards the middle of the North American session, when Greek Prime Minister George Papandreou announced that he was set to call a referendum on whether the troubled Hellenic state should accept the proposed debt action plan, which is forcing the Greek parliament to enforce deeply unpopular austerity measures. It appears highly likely that the referendum will deliver a ‘no’ vote, plunging the Eruozone deeper into crisis and possibly precipitating Greece’s exit from the Euro.

Elsewhere, the Reserve Bank of Australia surprised the markets by electing to cut their domestic interest rate from 4.75% to 4.50%. The accompanying commentary stated that the RBA feels that Australia’s ‘terms of trade have now peaked’, raising the spectre of a slowdown in growth rate Australia’s economy, raising the possibility of a renewed run at 1.6000 by the GBP/AUD rate.


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