By Peter Lavelle
Welcome to our account of changes in the foreign exchange rate in the last 24 hours, including our look ahead.
1. The pound faces significant pressure this morning, losing most of Wednesday’s gains, as risk aversion rises ahead of Greece’s second general election on Sunday.
Why has Greece affected the pound?
Because there’s a high chance Greeks could vote in a government opposed to its bailout scheme, causing it to crash out of the euro, and prompting unknown damage to the rest of Europe, including the UK. It is the potential damage to the UK of a Greek exit that has hit the pound.
Has this Greek exit hit the euro too then?
To a lesser extent, but the euro was already close to multi-year lows against the pound and US dollar before the election, so it’s had less far to fall than the pound. Of course, if it looks as though Greece might actually go, the euro is likely to lose out a great deal more.
Is Greece going to leave the euro?
There are worrying signs that it might. Even though 80.0% of Greeks favour staying in the euro, concerns of a return to the drachma are so high that Greeks are withdrawing some €1 billion a day prior to the election, to avoid getting caught out with a devalued currency.
When will we find out?
The election itself is held on Sunday. We’ll know as soon as the results come in which party has won the most support, but it won’t be until they form a government that we find out what course they take regarding euro membership. The last struggle to form a government lasted a week before Greece declared new elections, so it could be some time.
2. In addition, the Eurozone continues to dominate market sentiment elsewhere, as credit rating agency Moody’s downgrades Spain to just above Junk status.
What do you mean ‘Junk status’?
This is the point at which Spanish debts would not be worth the paper they’re printed on. It sends a decisive signal to investors that Spain cannot be trusted to pay its debts. In other words, the fact that Spain is just 1 notch above this point is extremely worrying.
Why has this happened?
Ironically, because of the €100 billion rescue of Spain’s banks that was meant to relieve the markets. Instead, it’s had the opposite to the intended effect, because the rescue adds some 10.0% to Spain’s public debt, making it less likely to remain solvent. In short, this has increased the odds Spain will need a comprehensive EU rescue before long.
Get in touch
I do hope this post has been useful. I will return with my next update tomorrow.
If you have any questions about the foreign exchange rate or transferring money abroad in the meantime, don’t hesitate to leave a reply in the box below. I’d be delighted to provide an in-depth personal answer to your enquiry, free of charge.
14 June 2012
Pound Exchange Rate Declines Ahead of Greek Election
By Peter Lavelle
Welcome to our account of changes in the foreign exchange rate in the last 24 hours, including our look ahead.
1. The pound faces significant pressure this morning, losing most of Wednesday’s gains, as risk aversion rises ahead of Greece’s second general election on Sunday.
Why has Greece affected the pound?
Because there’s a high chance Greeks could vote in a government opposed to its bailout scheme, causing it to crash out of the euro, and prompting unknown damage to the rest of Europe, including the UK. It is the potential damage to the UK of a Greek exit that has hit the pound.
Has this Greek exit hit the euro too then?
To a lesser extent, but the euro was already close to multi-year lows against the pound and US dollar before the election, so it’s had less far to fall than the pound. Of course, if it looks as though Greece might actually go, the euro is likely to lose out a great deal more.
Is Greece going to leave the euro?
There are worrying signs that it might. Even though 80.0% of Greeks favour staying in the euro, concerns of a return to the drachma are so high that Greeks are withdrawing some €1 billion a day prior to the election, to avoid getting caught out with a devalued currency.
When will we find out?
The election itself is held on Sunday. We’ll know as soon as the results come in which party has won the most support, but it won’t be until they form a government that we find out what course they take regarding euro membership. The last struggle to form a government lasted a week before Greece declared new elections, so it could be some time.
2. In addition, the Eurozone continues to dominate market sentiment elsewhere, as credit rating agency Moody’s downgrades Spain to just above Junk status.
What do you mean ‘Junk status’?
This is the point at which Spanish debts would not be worth the paper they’re printed on. It sends a decisive signal to investors that Spain cannot be trusted to pay its debts. In other words, the fact that Spain is just 1 notch above this point is extremely worrying.
Why has this happened?
Ironically, because of the €100 billion rescue of Spain’s banks that was meant to relieve the markets. Instead, it’s had the opposite to the intended effect, because the rescue adds some 10.0% to Spain’s public debt, making it less likely to remain solvent. In short, this has increased the odds Spain will need a comprehensive EU rescue before long.
Get in touch
I do hope this post has been useful. I will return with my next update tomorrow.
If you have any questions about the foreign exchange rate or transferring money abroad in the meantime, don’t hesitate to leave a reply in the box below. I’d be delighted to provide an in-depth personal answer to your enquiry, free of charge.