Eurozone debt worries spook the markets

Friday 5th August 2011
Good morning. Sterling vs Euro rates shot up to a new 2 month high yesterday, as comments from various quarters of the Eurozone gave markets the jitters and the Euro was sold off, creating significant weakness in the single currency. Rates at 08:30am this morning are as follows:

GBP/EUR 1.1489
GBP/USD 1.6272
GBP/AUD 1.5535
GBP/NZD 1.9448
GBP/CAD 1.5926
GBP/ZAR 11.2586
GBP/JPY 127.60
GBP/DKK 8.5561
GBP/NOK 8.9185
• EUR/USD 1.4164.

Eurozone debt worries weaken the Euro

Investor confidence was hit in a big way yesterday, after European Commission President Jose Manuel Barroso warned that the eurozone’s sovereign debt crisis was spreading, sparking fears that Italy and Spain might become engulfed in the problems. His comments further rattled the markets, which closed sharply lower. The Euro significantly weakened, and at one point GBP/EUR rates hit €1.1554, before dropping back away.

So far, Greece, Portugal and Ireland have needed bailouts. The European Commission is concerned that it might not be able to afford to rescue Italy and Spain, which have the eurozone’s third and fourth largest economies.

The European Central Bank (ECB) has said it will offer a fresh round of loans to banks in light of continuing fears about the eurozone debt crisis. “Given the renewed tensions in some financial markets, [the ECB] has decided to conduct a supplementary refinancing operation,” said the bank’s president, Jean-Claude Trichet. He added that economic uncertainty was “particularly high”‘.

Trichets comments coupled with Barroso’s spooked world markets which all fell throughout trading yesterday, creating some good Euro buying opportunities.

UK and EU Interest Rates

Both the Bank of England (BoE) and ECB left interest rates on hold yesterday as expected. It was the EU comments after the decision, as outlined above, that caused most of the movements in exchange rates.

Today’s Data

A busy end to the week, with PPI (Inflation) data from the UK, in addition to Industrial Production figures from Germany. A busy day in the states also, with Unemployment and Non Farm Payrolls at lunchtime.

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