April 14, 2011 - Written by John Cameron
STORY LINK Foreign Exchange Rates - Pound to Euro GBP EUR Sterling Dollar USD down over spanish debt concerns
The Pound Euro Exchange Rate GBP EUR is Currently 1.1265
The Pound Dollar Exchange Rate GBP USD is Currently 1.6346
There is little in the way of economic data due for release today. As a result the primary focus today falls upon the 1600 deadline for approval of plans to restructure Spanish debt from their 'caja' small banking institutions. These banks represent a large proportion of real estate debt and there is some concern over the ECB's ability to cover the debt with their current EFSF rescue package without additional funds. One potential saviour could be investment from Chinese private investors who are currently considering buying $13 bn worth of Spanish debt.
The main problem for Spain is that once the full impact of the real estate collapse has been factored into the equation, the expectation is that their total debt burden could rise to €120bn. Spain is therefore the primary concern for traders worried about sovereign risk. The size of their economic burden at the moment is arguably too great for the current rescue fund and investors confidence therefore won't fully return until the rescue fund is increased to cope with any potential future problems.
Spain also has the problem of having to restructure €22.8bn of expiring debt at the end of the month, this could be problematic and puts them closer to seeking EU aid. As a result of concerns over Spain we have seen the Euro pair back gains against the pound in trade this morning. The market has come off lows of 1.1209 yesterday peaking at 1.1284 this morning. It is unlikely that we are seeing a reversal, consolidation before another test of support is more likely, providing markets accept the plans set out for the restructuring of Spanish debt this afternoon.
President Obama put forward a budget proposal yesterday that would cut $4 trillion in deficits over a 12 year period. This could be the start of the US following the UK in trying to tackle spiralling budget deficits. This news had little effect on the market due to the long term nature of the suggested policy, traders focus primarily fell upon on news from the Beige book. This news indicated that the FED believes that the US economy has continued to improve aided by gains in manufacturing. This is despite firms feeling the pinch on higher costs associated with energy and raw materials. The overall trader consensus was that the news was positive for the US economy but not positive enough to see any short term change to monetary policy. As a result we have seen a bullish move in the GBP/USD pair and a rstest of 1.64 could be seen in trade at some point today.
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