How EU debt crisis/Korea is affecting exchange rates

Good Morning. World markets were affected yesterday due to ongoing concerns about the sovereign debt crisis in the Eurozone. Markets were also nervous due to the developing crisis in North Korea following the sinking of a South Korean warship. Today we’ll look at how these events are affecting exchange rates. First, the usual snapshot of rates @ 08:30am:

  • GBP/EUR 1.1681
  • GBP/USD 1.4344
  • GBP/AUD 1.7423
  • GBP/NZD 2.1527
  • GBP/CAD 1.5384
  • GBP/CHF 1.6645
  • GBP/NOK 9.4287
  • GBP/HUF 325.50
  • GBP/JPY 129.17
  • GBP/ZAR 11.266
  • EUR/USD 1.2276

Eurozone Debt – how is this affecting exchange rates?

The renewed concerns about EU debt follow comments on Monday from the IMF that the Spanish economy needs reform. Over the weekend the rescue of Spanish bank Cajasur by the Bank of Spain sparked fears about the Spanish Banks.

Four Spanish banks have since announced plans to merge. These concerns have lead investors to seek “safe havens” for their money. German government bonds and the US Dollar are safe havens, and that’s what has caused the movements in exchange rates over recent weeks.

The euro and the pound both weakened against the US currency as investors flock to the safe haven USD. Yesterday EUR/USD fell by 0.8% to $1.228. Against the pound the euro was trading at £0.855, making £1 worth €1.169.

The continued weakness of the euro is a concern, with investors dumping the currency amid fears that debts will cause defaults by weaker countries in the European Union. The single currency has fallen in value by almost a fifth against the dollar in the last six months.

Good Euro buying opportunities

Due to the crisis in the EU, the Euro is very weak. It’s important to remember that the pound is also very weak. We’ve dropped more than 10 points against the US Dollar in the last few weeks, and the only reason that rates for the Euro haven’t also dropped is the Euro weakness – as and when this is resolved, we expect the pound to drop back away.

For this reason, if you need to buy Euros in the next 3 months, you should consider fixing the rate with a Forward contract to protect against a drop in rates. Contact us today to find out more about this type of contract.

Tensions in Korea

There were reports in South Korea that North Korea had told its military to prepare for war, but only if the South attacked it first.

Tensions in the region have been growing since international investigators blamed the North for torpedoing and sinking a South Korean warship in March, killing 46 sailors.

This has caused markets in Asia to fall, along with US markets, with the Dow Jones shedding 1.2% and the S&P 500 dropping 1.3%.

The tensions just increase risk aversion, and combined with the Euro crisis, we’re seeing investors shed risky assets and flock to safe havens.

Summary – what does this mean for you?

It depends what currency you’re buying – but in a nutshell, the USD is strong due to the safe haven. investors are shunning risky assests like the pound and the Euro, weakening them both. Sterling exchange rates have fallen across the board, but Euro rates are still quite high due to Euro weakness; it may not last long, so contact us today for a free consultation on the expected movements of the currency you require, and ensure you achieve the best possible exchange rates.

Click the link below to get in touch today.

Foremost Currency Group

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