Sterling Euro Rate Up Again On Euro Summit Fears

Published: Wednesday, 23 May 2012 09:00 BST - Written by John Cameron

STORY LINK Sterling Euro Rate Up Again On Euro Summit Fears

The euro came under sustained selling pressure during yesterday’s afternoon session, following the release of a report by the Organisation for Economic Co-ordination and Development (OECD), which singled out the eurozone’s ongoing debt crisis as the most significant threat to the global economy. The OECD went on to echo international policy-makers’ comments of recent times in calling for a more balanced approach to growth. A general consensus appears to be forming that a single-pronged policy approach of austerity and nothing else will not be enough to rouse the world’s economy from its ongoing dormant spell.

Meanwhile, the eurozone’s policy-makers are set to hold yet another crisis summit later today. Investors do not hold out much hope that the meeting will yield any positive developments and it was this sentiment which saw the euro squeezed late yesterday. Indications are that France’s new President Francoise Hollande will use the meeting to press for the introduction of ECB-issued eurozone-wide bonds – a move which is supported by nearly all of the 17 eurozone members, with the notable exception of Germany. This has led analysts to predict that today’s meeting will widen the fissure which has developed between France and Germany since Hollande’s election earlier this month. Germany still appears committed to the euro-project – up to a point. If Hollande continues to act as an agent provocateur, we may rapidly discover where exactly that point lies. This could lead the single currency to tumble to new near-term lows against the Pound and the US Dollar, sooner rather than later.

Elsewhere, there was bad news for Japan following the announcement by leading credit ratings agency Fitch that it is cutting the Asian giant’s debt rating from AA to A+. However, the development failed to take the edge off global investors’ appetite for risk on the day, as global equities once again surged, with London’s benchmark FTSE 100 index gaining almost 2% on the session.

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