Prime Minister Describes Spanish Funding Situation as ?Very Difficult?, Heaping Further Pressure on the Euro

Published: Tuesday, 29 May 2012 09:00 BST - Written by Minesh Chaudhari

STORY LINK Prime Minister Describes Spanish Funding Situation as ?Very Difficult?, Heaping Further Pressure on the Euro

Spain’s centre-right Prime Minister Mariano Rajoy heaped further pressure on his troubled country’s finances during yesterday’s session in the currency markets, when he described Spain’s current funding situation as ‘very difficult’. Rajoy’s comments drove the differential between the yields on Spain’s 10 year bonds and their German counterparts to over 5% - the highest spread since the single currency came into being in 1999. The announcement came as a bitter blow following Spanish retail bank Bankia’s announcement on Friday that it was facing a funding gap of some €19bn.

Global equities markets had opened brightly yesterday, following the weekend shut down, thanks in part to the Chinese government’s announcement that it was set to open up its banking sector to private investors. This drove Asian indices higher during Monday – a move which was replicated by European markets during the morning session. However, the uptick in global investor sentiment lasted precisely as long as it took Rajoy to open his mouth and condemn his country’s gilts to further unwanted selling pressure.

Concerns over Spain’s fiscal position predictably hit the euro hard, sending the GBP EUR exchange rate all the way up to 1.2523 by the close of European equities markets. Losses for the single currency would surely have been greater were it not for the release of several Greek opinion polls which suggested that ‘pro-bailout’ parties were making significant gains ahead of next month’s re-run of the country’s general election.

German CPI inflation data, penned in for release this lunchtime, provides the most important risk event of today’s session. A lower than anticipated showing will spark renewed speculation that the ECB may be set to further loosen monetary policy, adding to downside pressure on the single currency.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Daily Currency Updates Euro Forecasts Euro Pound Forecasts Pound Eu Forecasts