Spanish Bond Yields Spiral, Sending Pound To Dollar Rate Lower

Published: Wednesday, 30 May 2012 18:00 BST - Written by Minesh Chaudhari

STORY LINK Spanish Bond Yields Spiral, Sending Pound To Dollar Rate Lower

Yesterday’s concerns over Spain’s fiscal position have threatened to escalate into all-out fear during today’s session, as the yields on the debt-addled Iberian state’s benchmark 10-year bills rose to 6.7%, perilously close to the 7%-plus danger zone. Meanwhile, the interest rate paid by Germany on its bonds, which act as a safe-haven due to the Teutonic powerhouse’s resilient economy, has dropped to a meagre 1.31%, revealing that panic levels amongst the investment community are rising.

The fervently ‘risk off’ trading environment has caused the US Dollar to strengthen, sending the GBP USD exchange rate into the low 1.55s during this afternoon’s European session. Meanwhile, the Pound has once again performed with credit on the day, as the UK hovered up a significant amount of hot money from European investors looking to escape the impending debt crisis. This is a feature which may become more prominent in the currency markets in coming weeks. Sterling was further supported by this morning’s mortgage approval data for April, which showed a surprise uptick from March’s number.

Elsewhere, the Turkish Lira has continued to strengthen against Sterling, taking the GBP TRY exchange rate down to 2.8600 on the day. However, the Lira remains firmly in the ‘at risk’ category, along with the majority of the other emerging market currencies, that to its heavy reliance on the continued well-being of Turkey’s major trading partner, the eurozone, and to its classification as a bell-weather for global investor sentiment. The next month could prove to be a difficult one for the Turkish currency.

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