Pound Euro Exchange Rate Dips On Spanish Bailout Rumours, US Inflation Numbers Could See GBP USD Fall

Published: Tuesday, 16 October 2012 18:00 BST - Written by David Woodsmith

STORY LINK Pound Euro Exchange Rate Dips On Spanish Bailout Rumours, US Inflation Numbers Could See GBP USD Fall

In an unusual turn of events, the euro has outperformed all of the other sixteen most-actively traded currencies during today’s session. Investor sentiment towards the single currency has begun to thaw in recent weeks, partly thanks to the European Central Bank’s positive action in announcing an open-ended bond purchase scheme last month. The beefed up bailout fund, which ECB President Mario Draghi confirmed as being operational two weeks ago, has started to show its value during today’s session, as market whispers regarding an imminent Spanish bail-out circulated amongst investors. These rumours suggested that the debt-troubled Iberian state is about to be granted an extensive line of credit by the newly-instigated European Stability Mechanism. If the ECB does indeed come to Spain’s aid this side of Christmas, it will send out a strong message of solidarity regarding the seventeen nation euro area’s determination to stave off an all-out debt meltdown. The mere suggestion of such an eventuality has seen the GBP EUR exchange rate dip as low as 1.2337 on the day, in spite of slightly lower than expected whole of eurozone CPI inflation data, released earlier. The figures showed that the rate of price rises is cooling in euroland, giving the ECB increased scope to further loosen monetary policy. Nagging fears that another European rate cut may be on the cards before the year is out could cause a rapid reversal for GBP EUR following its recent tame performance.

Elsewhere, this afternoon’s US CPI inflation numbers slightly bettered expectations, printing at 2.0%. The increase from August’s 1.7% showing suggests that price pressures are still prevalent in the world’s leading economy. These fears could prevent the Federal Reserve from announcing a near-term extension to its Quantitative Easing programme, triggering further support for the US Dollar. A break back below the key psychological level at 1.6000 cannot be ruled out for the GBP USD exchange rate in the short term.

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