Foreign Exchange Rates : Pound Suffers as Moody's Investigates UK Retail Banks, GBP EUR Up Later as Officials Discuss Greek Debt Reprofiling

May 25, 2011 - Written by John Cameron

STORY LINK Foreign Exchange Rates : Pound Suffers as Moody's Investigates UK Retail Banks, GBP EUR Up Later as Officials Discuss Greek Debt Reprofiling

The Pound Euro exchange rate (GBP EUR) is 1.1519. The Pound Dollar exchange rate (GBP USD) is 1.6163. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5429.

European Commissioner Olli Rehn has stated in the last twenty four hours that Greece’s debt may have to be ‘re-profiled’ and that the term of the stricken state’s loans may need to be extended.

If Greece did take the action that Rehn is suggesting, it seems likely that leading ratings agencies would consider this a de facto default and it is likely that the consequence would be a run against the Euro in the currency markets.

Meanwhile, in the UK, Sterling suffered its first significant losses against the other majors for four trading days during yesterday’s session, as leading ratings agency Moody’s announced that it was set to investigate the credit-worthiness of fourteen leading UK Retails Banks, with a view to a possible downgrading of their credit ratings. The banks being investigated included Lloyds Banking Group and RBS Group, both of which are partly state-owned.

Moody’s stated that its action was precipitated by the assertion by British authorities that banks ‘that fail in the future should not expect capital injections from the public purse.’

The Pound came under further selling pressure with the release of the UK Public Sector Net Borrowing figure for April yesterday morning. This number showed that UK government borrowing reached £10bn last month, its highest ever April level.

The combined effect of these Sterling-negative releases saw the GBP EUR exchange rate trade down to 1.1425 by mid-morning UK time yesterday. However, the GBP EUR rate broke back above 1.1500 during last night’s Asian session and is holding there thanks to renewed fears over Greek sovereign debts.

Elsewhere, Asian equities came under selling pressure last night as risk aversion spiked on weak Japanese export data and continuing jitters over Eurozone sovereign debts. The easing off in appetite for risk has seen the GBP AUD and GBP NZD rates pick up in early trading today and could take GBP USD lower later.


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