Foreign Exchange Rates : Comments by Eurozone Policy-Makers Determine GBP EUR and EUR USD Rates

May 11, 2011 - Written by John Cameron

STORY LINK Foreign Exchange Rates : Comments by Eurozone Policy-Makers Determine GBP EUR and EUR USD Rates

The Pound Euro exchange rate (GBP EUR) is 1.1355. The Pound Dollar exchange rate (GBP USD) is 1.6363.

Yesterday saw another day of rumour and conjecture surrounding the sovereign debt situation in peripheral Eurozone states, with several European policy-makers making comments in an attempt to calm the market’s concerns.

EU Economic Affairs Commissioner Olli Rehn stated that the EU delegation, which is currently in Athens, is there merely to specify the needs of the Greek economy for the coming twelve months and not, as many analysts had suggested, to negotiate an immediate alteration to the terms of Greece’s existing bail-out.

However, Commissioner Rehn muddied the waters when he dismissed the ‘moral hazard’ argument for charging punitive interest rates on Greece, Ireland and Portugal’s bail-out loans, instead suggesting that interest rates on the loans should be set according to affordability.

Other European policy-makers to comment on Greece’s situation yesterday included Ewald Nowotny and Governing Council member Lorenzo Bini Smaghi, who stated that a restructuring of Greece’s debt would be ‘wrong’ and would have a ‘dramatic’ effect on the single currency. Both speakers suggested that a restructuring might not be possible in any case.

Meanwhile, economic data was of a generally firmer tone than it had been in recent sessions, with both Australian and Chinese Trade Balance figures released during yesterday’s Asian session, far outstripping expectations. Last night’s Chinese CPI Inflation figure for April printed at 5.3% again beating analysts’ predictions of 5.2%.

The improved data caused a forward move for stock markets, with the FTSE 100 closing up by 1.28% and the benchmark S&P 500 index gaining 0.81% on the day. These gains continued into last night’s Asian session. However, the pick up in risk sentiment which this move points to, was limited due to continuing fears over European sovereign debts. This factor ensured that the expected US Dollar losses were limited, with the GBP USD exchange rate closing at 1.6368, down by just under 0.5c on the day and EUR USD holding steady between 1.43 and 1.44 for virtually the whole session.

Elsewhere, the IMF issued a report which stated that, based on interest rate differentials, the New Zealand Dollar was over-valued on the currency markets by between 5 and 20%. This saw the GBP NZD exchange rate briefly break through the 2.0750 level, making it an ideal time for investors to move funds over to New Zealand.

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