Foreign Exchange Outlook : EUR CHF Rate Drops to it Lowest Ever Level as Euro Debt Concerns Heighten

May 24, 2011 - Written by John Cameron

STORY LINK Foreign Exchange Outlook : EUR CHF Rate Drops to it Lowest Ever Level as Euro Debt Concerns Heighten

The Pound Euro exchange rate (GBP EUR) is 1.1456. The Pound Dollar exchange rate (GBP USD) is 1.6124.

The Euro once again stole the limelight in the currency markets yesterday, as fears increased that several peripheral nations may be at risk of defaulting on their sovereign debts.

The yield on Greece’s 10 year treasury bills rose to a punishing 16.8% during yesterday’s trading, as investors continued to lose belief in Greece’s ability to keep to its lending commitments. Only a week ago, the yield on the same bonds was 15.3%.

Worryingly for investors holding Euro-denominated assets, problems with sovereign debts are not confined to Greece; leading ratings agency S&P downgraded its outlook for Italy’s sovereign debt to ‘negative’ and suggested that it was likely that further downgrades would take place. Meanwhile, the yield on Spain’s 10 year bonds rose to 5.6%, its highest level this year.

Meanwhile European policy-makers attempted to calm the situation, with ECB board member Ewald Nowotny confirming that Europe’s central bank would continue to accept Greek treasury bills as collateral.

Eurogroup leader, Jean-Claude Juncker also repeated his assertion of last week that the ECB might consider permitting Greece to restructure its debt, providing the Greek government kept to the terms of its bail-out. However, he went on to liken any re-structuring to letting a genie out of a bottle and expressed fears that global ratings agencies might view such an action as a de facto default.

Elsewhere, the major beneficiaries of the eurozone’s continuing debt woes have been the safe-haven Swiss Franc and US Dollar. The EUR CHF rate dropped to its lowest ever level yesterday, whilst equities markets plummeted causing considerable support for the Greenback, which took the GBP USD rate to below 1.6100 for the first time since the start of April.



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