Pound Euro Exchange Rate (GBP EUR) Makes Gains As Cyprus Considers Taking Russian Bailout Funding

Published: Thursday, 21 March 2013 10:00 BST - Written by Toni Johnson

STORY LINK Pound Euro Exchange Rate (GBP EUR) Makes Gains As Cyprus Considers Taking Russian Bailout Funding

The US Dollar has weakened somewhat in the aftermath of yesterday evening’s Federal Reserve FOMC policy announcement. Although the US central bank’s policy committee opted not to adjust its current policy stance, the accompanying statement which was released at the same time suggested that Quantitative Easing is here to stay in the States. The Fed’s commentary struck a decidedly negative tone, observing that the US economic recovery is patchy and that a return to sustained economic growth is an unlikely prospect unless the current extraordinary policy measures are maintained.

Recent comments from Fed Chairman Ben Bernanke, along with the minutes of last month’s FOMC meeting, hinted that a withdrawal of QE might be on the cards. However, last night’s firmly pro-QE statement seems to mark a reversal. The US Dollar has come under selling pressure in the aftermath of yesterday’s announcement, taking the Pound to US Dollar exchange rate (currency : GBP USD) up as high as 1.5148 overnight.

Elsewhere, the ‘Cyprus situation’ continues to rumble on, with Russia becoming increasingly embroiled in the tiny island state’s fiscal difficulties. Reports suggest that the Cypriot President will hold discussions with leaders of the nation’s opposition parties later today in order to present a new bailout proposal. Analysts believe that this new plan will involve a package which is part-funded by Russia. Cyprus has been a long-time home for Russian investments and it is believed that many of the investors currently holding over €100,000 in Cypriot banks are wealthy Russian businesses and individuals. It is these investors which would have lost 9.9% of their holdings as a part of the initial bail-out plan from the EU/ECB/IMF. Cypriot banks remain shut in the meantime.

However, any Russian funding for Cyprus is likely to come at a heavy cost, with Russia’s policymakers suggesting that they would want the eurozone state to cede an element of its sovereignty to the former communist state as a condition. Market participants appear unimpressed by the development and the single currency has lost ground as a consequence. This sent the Pound euro exchange rate (currency : GBP EUR) to 1.1743 during last night’s Asian session.

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