Euro weakens over political uncertainty in Ireland

23rd November 2010
Good morning. The euro slipped against sterling yesterday, relinquishing early gains after the single currency’s initial rally after Ireland secured a debt bailout was overtaken by political uncertainty as Dublin looked headed for an early election. We’ll look at these developments in a moment after a snapshot of rates as at 08:30am:

  • GBP/EUR 1.1733
  • GBP/USD 1.5936
  • GBP/AUD 1.6247
  • GBP/NZD 2.0756
  • GBP/CAD 1.6248
  • GBP/CHF 1.5768
  • GBP/ZAR 11.217
  • GBP/NOK 9.606
  • GBP/JPY 133.23
  • GBP/HUF 322.22
  • EUR/USD 1.3576

Irish debt and political uncertainty

Initially the bailout news strengthened the Euro, pushing GBP/EUR rates into the €1.16’s. Later in the day however, it became clear there is severe political uncertainty, and this weakened the Euro again pushing rates back above €1.17. Investors fear that far from stemming the eurozone debt crisis, Ireland’s bailout has given it fresh legs with Portugal and Spain the next in the firing line.

“The debt crisis will put pressure on the euro and keep the US dollar stronger, and that will put pressure on equity markets,” said Ben Kwong Man Bun at KGI Securities in Hong Kong. This could mean a rise in GBP/EUR rates but a decline in GBP/USD rates.

Ireland is the second European country to need emergency loans from the EU and the IMF after Greece was granted a 110bn euros package over the summer. Officials from the IMF will report later on whether they will release the next tranche of loans to Greece.

The Irish government will publish a four-year budget plan on Wednesday, which will provide some detail of spending cuts and tax rises amounting to 15bn euros, including 6bn euros next year.

There are growing calls for an immediate Irish general election, in particular from opposition parties Fine Gael and Labour, in protest at the government’s handling of the economy, and particularly its continued denial of the need to ask for financial assistance before calling for aid at the weekend.

Sterling will also play it’s hand

So the Euro may weaken further which would usually push rates up. Economic data in the UK will also play it’s part however. A run of good data recently has caused the pound to rise. There are concerns however that the Bank of England will have to continue their Quantitative Easing programme sooner or later, and when they do it could easily push GBP/EUR rates well back to the €1.11’s we saw 6 weeks ago.

Any bad economic data releases could also weaken Sterling further, and so rates are precariously balanced at the moment with nobody sure which way the scales will tip.

Today’s data that could affect rates

We have already had German GDP figures which came in as expected and so had no real effect. We have inflation data from the EU today in addition to some mortgage approval figures for the UK.

From the US this afternoon we have GDP, Home sales, and the FOMC minutes. To find out how these releases could affect rates for the currency you need to purchase, contact us today and see how much you could save with our commercial exchange rates for any amount from £5000+.

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