Welcome to our account of movement in the foreign exchange rates overnight.
Progress at last! The euro has taken almost 1.00% from the pound and US dollar overnight, as the Eurozone at last announces real progress in ending its debt crisis.
Last night, heads of state announced that European banks would be able to tap the EU rescue fund directly, without needing to go through the sovereign. This means, for instance, that Spain will not need to add to its public debt to rescue its banks, immediately reducing its indebtedness. This could also have beneficial effects for Ireland and Italy, which are in a comparable position.
Of course, it’s not all strawberries and cream today. The Eurozone is expected to spend six months setting up the bureaucratic machine for this. Whether the markets have the patience for that, or whether they’ll continue to attack Spain et al. in the meantime, is something we’ll soon find out. If they do decide this measure is inadequate, the euro could soon find itself on the back foot.
In addition to losing out on EU optimism, the pound came under pressure on a parade of pessimistic UK news yesterday. For one, official statistics revealed the present recession is deeper than previously thought, with growth contracting more than realised at the end of last year.
In addition, this sudden scandal about Barclay’s manipulation of the LIBOR rate (which, among other things, has a big influence on the foreign exchange rate) has also rocked the pound. With the prospect of UK banks losing billions in fines and lawsuits, and a stringent tightening of regulations to prevent it happening again, that could keep the pound under pressure for some time.
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