Foreign Exchange Report : GBP AUD and GBP NZD Rates Up as ECB Slashes Eurozone Growth Forecast For 2012

Modified: Friday, 11 November 2011 06:37 BST - Written by John Cameron

STORY LINK Foreign Exchange Report : GBP AUD and GBP NZD Rates Up as ECB Slashes Eurozone Growth Forecast For 2012

The Pound Euro exchange rate (GBP EUR) is 1.1696. The Pound Dollar exchange rate (GBP USD) is 1.5925. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5712.

Stronger than anticipated demand for Italian bonds at yesterday’s debt auction helped assuage market participants’ fears regarding an immanent Eurozone debt meltdown. There were twice as many bids as there were offers for Italian gilts at the auction, causing the yield on 10-year Italian government bills to dip back below 7%. Interest rates above 7% on government debts are considered untenable in the medium term. The Italian patient is out of intensive care, for the time being, at least.

However, yesterday was far from plain sailing for the Euro, as fears resurfaced over the state of the region’s real economy. These concerns were stoked by the European Central Bank’s monthly report, which slashed the central bank’s growth forecast for next year from 1.8% to a paltry 0.5%. This lead European Commissioner Olli Rehn to warn of the possibility that the Eurozone is set to re-enter recession.

Federal Reserve Chairman Ben Bernanke inflamed the situation with a set-piece speech later in the day, in which he commented that European leaders needed to act ‘forcefully’ in order to avert a full-blown crisis. He went on to state that that if there was a ‘blow-up’ in Europe, then the US economy would suffer.

The situation remains fragile and this is weighing down the high-yielding currencies; the GBP AUD rate broke through the 1.58 level in early trading yesterday, while GBP NZD was approaching 2.06 as European markets opened.

Meanwhile, the US Dollar has come in for some support as market participants feel the fear. This has seen the GBP USD rate settle back into the 1.59-1.60 range. It seems highly likely that, at some stage soon, perhaps when Italian debt spreads next spike, this pair will head sharply lower.


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