Pound To Euro Exchange Rate Threatens New 18-Month High As Spanish Debt Fears Escalate

Published: Monday, 16 April 2012 09:00 BST - Written by Ben Hughes

STORY LINK Pound To Euro Exchange Rate Threatens New 18-Month High As Spanish Debt Fears Escalate

Eurozone debt concerns cast a dark pall over the financial markets as last week’s trading session drew to a close. The focus of investors’ fears was once again Spain. The yields on Spanish 10 year government bonds edged towards 6% on Friday’s session – a level which they had approached in the early part of last week, before dropping back. The move against Spanish debt was driven by concerns that Spain is becoming increasingly dependent on hand-outs from the European Central Bank in order to mask the massive hole in its public finances.

Concerns over Europe’s debt crisis saw world equities markets lose ground on the day, with London’s FTSE 100 ending the session by over 1%, while continental European indices incurred even heavier losses, with Frankfurt’s Dax losing 2.36% of its value on the day and Madrid’s IBEX closing down by 3.58%. Meanwhile in the currency markets, the GBP EUR exchange rate edged higher into the 1.21s and threatened to break to a new 18-month high above the pair’s current marker of 1.2168.

Elsewhere, there was positive news for the Pound late on Friday, when leading ratings agency Standard & Poor’s confirmed the UK’s AAA credit rating and went on to describe Britain’s economy as, ‘wealthy, open and diverse’, However, the lustre was taken from these comments this morning, with the release of a report from Ernst & Young’s ITEM Club, the widely-respected independent think tank, which used the UK Treasury’s own economic modelling software to predict that growth in the domestic economy will be only 0.4% this year. The latest official government figures estimate an 0.8% annualised expansion in British economic activity. If tomorrow morning’s UK inflation figures for March show a cooling in the rate of British price rises, then Sterling could experience a difficult start to the week.

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