Pound Dollar Exchange Rate (GBP USD) Tests Lower Following Cyprus Bailout

Published: Monday, 18 March 2013 16:00 BST - Written by Minesh Chaudhari

STORY LINK Pound Dollar Exchange Rate (GBP USD) Tests Lower Following Cyprus Bailout

The euro suffered pronounced selling pressure when the currency markets re-opened at the start of today’s session following the eurogroup of Finance Ministers’ surprise weekend announcement that Cypriot savers would be forced to make a hefty contribution towards the nation’s proposed €10bn bailout.

The news sent the Pound to euro exchange rate (currency : GBP EUR) above the 1.1700 level during last night’s Asian session. It was the first time the pair had traded above this level since 12th February and in truth GBP EUR appeared over-bought at these rates, given that it ended last Friday’s session trading at 1.1560. The pair has spent the majority of the day testing lower and currently resides in the mid-to-upper 1.1600s.

At this stage, it remains far from certain that Cyprus will accept the bail-out deal which remains on the table. The troubled Mediterranean nation’s parliament was due to hold an emergency sitting to discuss the way ahead earlier today. However, following widespread outrage from investors holding savings in Cyprus’ banks, this special session of parliament has been postponed. Market rumours suggest that the proposed 6.75% levy on balances of under €100,000 held in Cyprus’s banks may be downwardly amended, or even cancelled, in an attempt to avoid small-scale savers and SME’s shouldering the brunt of the cost of the bailout. Market movement for GBP EUR following today’s developments in Cyprus suggest that investors holding euros are encouraged by the EU’s apparent consensual approach in dealing with Cyprus.

Elsewhere, Cyprus’s ‘strings attached’ bailout has caused a sharp dip in global appetite for risk as investors fret about the potential effect that this, and any future bailouts with similar caveats, might have on Europe’s creaking banking sector. The flight to safety today has sent global share indices lower and caused support for the US Dollar in the global currency markets, sending the GBP USD exchange rate (currency : GBP USD) down below the 1.5100 level earlier.

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