Pound Euro Exchange Rate (GBP EUR) Hits 6-Week High On Cyprus Fears

Published: Friday, 22 March 2013 10:00 BST - Written by John Cameron

STORY LINK Pound Euro Exchange Rate (GBP EUR) Hits 6-Week High On Cyprus Fears

Price action in the global currency markets during today’s session are likely to be dominated by events in Cyprus. Members of Parliament in the debt-troubled Mediterranean state are due to vote on a series of measures designed to raise the finances required in order to secure a much-needed bail-out from Brussels.

The situation in Cyprus has been afforded additional urgency in the last 24hrs thanks to the European Central Bank’s announcement that it is giving the nation’s lawmakers until Monday to cobble together a plan for proceeding with the bailout. The chances of this occurring have suffered a blow with the overnight announcement from Russia’s Finance Minister that talks between the two nations regarding a part-funding of any package have broken down. It now appears that Cypriot policymakers face a stark choice between imposing a draconian levy of up to 9.9% on their country’s savers, or to sit tight and brace themselves for an almighty fiscal car crash.

The euro remains under pressure ahead of the series of votes, sending the Pound euro exchange rate (currency : GBP EUR) up as high as 1.1783 earlier. This represented the pair’s highest level for some 6 weeks. Clearly, there is further potential for upside for the pair if Cyprus’s policymakers take the ‘car crash’ option. However, since the long-standing global credit crisis first broke in 2007, the EU/ECB have shown a deft touch in reassuring the markets and smoothing over emergency after emergency in several of the eurozone’s seventeen nation states. If the region’s policymakers come up with a workable compromise for Cyprus, then it appears likely that the euro may steady in the short-term. If GBP EUR does begin to re-trace back downwards, then its logical target to the downside comes in the middle part of the 1.1300s, where it has traded down to as recently as 12th March.

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