Foreign Exchange Report : Pound Euro Rate GBP EUR Gains Again as Spanish Bond Yields Soar, While USD Gains as Global Stock Markets Lose Ground

November 15, 2011 - Written by John Cameron

STORY LINK Foreign Exchange Report : Pound Euro Rate GBP EUR Gains Again as Spanish Bond Yields Soar, While USD Gains as Global Stock Markets Lose Ground

The Pound Euro exchange rate (GBP EUR) is 1.1699. The Pound Dollar exchange rate (GBP USD) is 1.5917. The Pound Australian Dollar exchange rate (GBP AUD) is 1.5616.

Any thoughts that the Euro was out of the woods, following the leadership changes in Italy and Greece, were scotched during yesterday’s session in the currency markets.

Global equities markets began the week on the front foot, with Tokyo’s Hang Seng index ending the first session of the week up by nearly 2%. However, European and North American indices were unable to maintain the forward momentum when they opened. The FTSE 100 ended the day down by nearly 0.5%, whilst in the US, the benchmark S&P index had a similar amount eroded from its value. European indices lost even more ground.

The turnaround in risk sentiment was once again caused by movements in bond markets. The latest Italian bond auction saw Italy’s government pay a Euro-era high of 6.29% on its 5 year government bills. Meanwhile, the interest rate that Spain’s government was paying on its gilts broke above 6% for the first time since mid-summer. Spain has so far remained under the parapet during the latest flare-up in the Eurozone debt crisis, so widening yields on Spanish gilts was a particularly worrying development.

Meanwhile, concerns mounted that Europe’s debt crisis is beginning to have a dampening effect on economic activity in the region, as September’s whole of Eurozone Industrial Production data showed a significant slowdown in Europe’s industrial output. The figure printed at 2.2%, considerably lower than August’s counterpart figure of 6.0%.

The downward movement in sentiment toward the Euro caused the GBP EUR to once again approach last Wednesday’s 8-month high of 1.1785, touching 1.1708 in early trading today. The shift out of risk had the additional effect of causing support for the safe-haven USD and eliciting downward pressure on the high-yielding AUD, NZD and ZAR.


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