Foreign Exchange Update: GBP EUR Focus shifts to Widespread USD selling on Debt Default Concerns

July 27, 2011 - Written by John Cameron

STORY LINK Foreign Exchange Update: GBP EUR Focus shifts to Widespread USD selling on Debt Default Concerns

The Pound Euro exchange rate (GBP EUR) is 1.1340. The Pound Dollar exchange rate (GBP USD) is 1.6423. The Pound Australlian Dollar exchange rate (GBP NZD) is 1.4840. The Pound New Zealand Dollar exchange rate (GBP NZD) is 1.8749.

The UK GDP figures yesterday showed that the UK economic growth rate slowed to 0.2% for the second quarter. Numerous excuses have been given by government officials including the extra bank holiday and the Japanese Tsunami. Chancellor George Osbourne has attempted to make out that the released figure is good news. In reality the figure is far from good news. The slowdown in economic growth poses some serious problems for government and it is now argued that measures should be taken to boost economic growth. Shadow Chancellor Ed Balls has accused Osbourne of flat lining the UK economic recovery over the past 9 months through the VAT rise and spending review earlier in the year.

The Pound has traded relatively flat in the last 24 hours as market participants decide where the trend should go from here. It is hard to see where gains will come from and we would therefore maintain our neutral stance on the pound moving into the latter part of the year.

The tumble in the Dollar in recent days was expected and could continue as the threat of a ratings agency debt down grade becomes a greater possibility. No official statement was released from Obama or Boehner yesterday and they continue to blame their respective counterparts. The House of Representatives have postponed the vote on Boehner's budget after politically neutral economists argued that it would not lead to the savings that were claimed. Bill Daley Obama's chief of staff also reiterated that he did not believe that the Boehner bill would pass through senate. Rumours were circulating yesterday that Obama could pass the 14th amendment to force the hike to the debt limit, however Daley went on to say that this was an unrealistic answer.

The Euro has held a position of relative strength in overnight trading, ECB member Christian Noyer spoke yesterday and argued that the ECB is still in a state of strong vigilance. This kind of language could mean more rate hikes to come from the ECB in the short term so the markets will be watching closely for any further indications in the coming weeks.

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