War Talk From Pyongyang Eases And GBP USD Exchange Rate Gains, GBP EUR Rate Tests Higher

Published: Friday, 5 April 2013 09:00 BST - Written by John Cameron

STORY LINK War Talk From Pyongyang Eases And GBP USD Exchange Rate Gains, GBP EUR Rate Tests Higher

Yesterday brought a day of considerable price action in the global currency markets. The euro fell out of favour during the early part of the day as the latest German Purchasing Manager Index survey showed that economic growth in the eurozone’s leading economy had almost ground to a halt last month. The PMI survey measures activity levels in the key manufacturing and services sectors of the Teutonic powerhouse economy had come close to shrinking during March. This came as bad news for Germany and for the euro alike.

The poor data from Germany was compounded by some alarming comments from European Central Bank President Mario Draghi during his post-policy announcement press conference. Draghi stated that the problems prevalent in his region’s less resilient economies, including Spain, are showing signs of spreading into stronger neighbouring economies. The prospect of debt contagion sweeping the eurozone piled the pressure on the single currency, sending the Pound to euro exchange rate (currency : GBP EUR) up to close to 1.1900 by the time Europe’s equities session was drawing to a close yesterday.

However, the pair regained its composure before the North American close and is currently trading back below the 1.1800 threshold. The improvement for the euro was partly driven by Draghi’s admittance that the proposed levy on savers holding under €100,000 in Cypriot bank accounts had been an error. Draghi’s statement reaffirms the Cypriot bailout as a ‘special case’ and served to allay market fears that future eurozone bailouts might come with similarly onerous conditions attached.

Elsewhere, the US Dollar had started yesterday’s session in bullish form, sending the GBP EUR exchange rate down to close to the psychologically key 1.5000 level. The move was driven by a flood of safe-haven support for the Greenback following an escalation of the ‘war talk’ aimed at the USA and South Korea from Pyongyang’s leadership. However, fears surrounding the potential for near-term aggression from North Korea abated as the day progressed, as analysts pointed out that the secretive pariah state has a history of goading American and South Korean interests in an effort to have its interests heard. The ‘Buck’ lost ground throughout the day, and by Europe’s close, the Pound to US Dollar exchange rate (currency : GBP USD) had hauled itself back above 1.5200.

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