Pound to Euro (GBP/EUR) & Pound to Dollar (GBP/USD) Exchange Rates Fall

Modified: Monday, 8 July 2013 09:25 BST - Written by John Cameron

STORY LINK Pound to Euro (GBP/EUR) & Pound to Dollar (GBP/USD) Exchange Rates Fall

Friday’s session in the currency markets brought a divergence in appetite for risk between North America’s markets and those in Europe. Investors in the eurozone were fighting shy of risk-laden assets from the very start of the final trading day of the week thanks to renewed fears regarding the region’s long-standing and still potentially harmful debt crisis. The outcome brought pronounced price action for the Pound to Dollar and Pound to euro exchange rates.

This time concerns centred on the future prospects of Portugal as news emerged that the debt-addled Atlantic nation’s coalition government was apparently unravelling following the resignation of two leading ministers. Rumours that Portugal’s pro-austerity government was on the edge of falling apart caused Europe’s bourses to leak support, with Frankfurt’s benchmark Dax index closing down by 2.36%. Meanwhile, European bond yields, and particularly those of struggling peripheral states, rose significantly. The Pound to euro exchange rate (currency : GBP EUR) remained close to its near-term lows as the negative effect of the Portugal situation was more than cancelled out by new Bank of England Governor Mark Carney’s opening salvo of the day before which was fervently dovish.

Portuguese Premier Pedro Passos Coelho held emergency talks with his coalition partners over the weekend and he claims that these have been fruitful. However, with a deal yet to be finalised, the possibility exists that Portugal may be heading for a general election sooner rather than later. With the draconian austerity measures which the Portuguese people have had to endure in recent years becoming increasingly unpopular, the potential exists that such a public ballot would yield an ‘anti-austerity’ ruling party/parties. Such an event could give Brussels a headache to end all headaches – a Greece 2, but this time with an attendant sea of debt contagion.

Meanwhile, Friday’s Non-Farm Payroll print for June thrashed expectations, sending the Pound to Dollar exchange rate (currency : GBP USD) sharply lower as investors priced in a higher chance that the Fed will be trimming its QE on or before September. There could be more losses to come for Cable this week – look out for key support at 1.4270 GBP/USD if this proves to be the case.

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