GBP EUR Exchange Rate Dips Following Cyprus Bailout Deal

Modified: Monday, 25 March 2013 08:40 BST - Written by Ben Hughes

STORY LINK GBP EUR Exchange Rate Dips Following Cyprus Bailout Deal

The weekend market shut-down often gives currency market participants pause for reflection and allows the preceding Friday’s global situations to calm down. However, this week’s market close simply allowed the one major pent up potential flashpoint on investors’ minds to increase in gravity.

The debt crisis in Cyprus snowballed in the forty-eight hours following Friday’s market close with the Bank of Cyprus, the island’s number one lender, limiting customer cashpoint withdrawals to €120 per day. The eurogroup of Finance Ministers announced late last week that today was the ultimate deadline for the debt-addled Mediterranean state to raise €5.8bn in order to part-fund the proposed €10bn bail-out, upping the ante considerably. The stakes could barely have been higher as Cypriot President Nicos Anastasiades went head-to-head with officials from the EU/ECB/IMF Troika late into last night in an attempt to reach an accord.The eventual announcement late last night that the Troika had agreed a bailout deal with Cyprus went down well with global equities markets and helped the euro gain ground in the overnight session, sending the GBP EUR exchange rate (currency : GBP EUR) back down into the 1.1600s once more.

Elsewhere, the weekend market shutdown brought bad news from the UK, as leading credit ratings agency Fitch delivered its verdict on last Wednesday’s Budget statement from British Chancellor of the Exchequer George Osborne. Predictably, the analysts at Fitch were far from impressed with what Osborne has to say. Of particular concern was the larger than anticipated overall level of indebtedness of the UK economy and the halving of the Office for Budget Responsibility’s official 2013 UK GDP growth forecast. The upshot was that Fitch placed its long-term rating for the UK economy to ‘negative’, greatly increasing the chances that it will follow Moody’s actions of a few weeks’ ago in stripping Britain of her long-held AAA credit rating.

Away from Cyprus, key risk events for the Pound to euro exchange rate (currency : GBP EUR) this week include Wednesday’s finalised UK Q4 GDP growth data, as well as Thursday’s German Unemployment Change numbers. The one thing that is assured for GBP EUR between now and Friday’s market close is volatility.

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