Euro Investors Nervously Await The German Constitutional Court?s Bailout Fund Ruling ? Pound To Euro Rate Could Spiral

Modified: Wednesday, 12 September 2012 08:07 BST - Written by James Fuller

STORY LINK Euro Investors Nervously Await The German Constitutional Court?s Bailout Fund Ruling ? Pound To Euro Rate Could Spiral

Events during today’s session in the currency markets are likely to be shaped by the decision of a single, little known body – the German Constitutional Court. The Karlsruhe-based organisation is set to pass judgement later today on whether the European Stability Mechanism should be recognised by Germany’s government. A large section of German right wing and centre right wing politicians and voters believe that the eurozone’s bailout fund operates outside the bounds of the German constitution and so there is no legal case for the Tuetonic giant to contribute to it. Those collectively opposed to the continuance of the ESM flexed their muscles during yesterday’s session by lodging an injunction which attempted to postpone the Court’s verdict. The filibustering measure ultimately failed, but it’s indicative of the growing resentment in Germany regarding the constant drip-feed of funds which Europe’s leading economic superpower is making available to the region’s debt-ridden peripheral states.

If the German Constitutional Court deigns that Germany’s Bundestag is not legally obliged to fulfil its scheduled ESM commitments, then the threat of one or more sovereign debt defaults will once more rear its ugly head, as an ESM without Germany would be considered a toothless proposition. Such a scenario would see the euro coming under heavy and sustained selling pressure, potentially sending the GBP EUR exchange rate back up into the high-1.20s once again.

The single currency has performed creditably over the past week, thanks largely to the European Central Bank’s announcement last Thursday that it would be throwing its full weight behind a renewed, deeper bout of bond purchasing. Today’s events have the potential to undo all of the ECB’s carefully-choreographed good work.

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