Sterling up as IMF and ECB try to resolve debt crisis

Wednesday 28th September 2011
Good morning. Sterling rose against the Euro and US Dollar slightly. This was due to cautious optimism that policymakers were putting together measures to ease the euro zone debt crisis. This supported demand for riskier currencies such as the Pound, and this is why we’re up slightly, however as we will see shortly it’s not likely to continue. At 08:30am this morning rates are as follows:

GBP/EUR 1.1502
GBP/USD 1.5656
GBP/AUD 1.5783
GBP/NZD 1.9875
GBP/CHF 1.4036
GBP/CAD 1.6000
GBP/ZAR 12.242
GBP/JPY 119.69
GBP/DKK 8.5597
GBP/NOK 8.9846
• EUR/USD 1.3603

Optimism over Greek debt boosts risky currencies

European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) officials are expected to review progress today in cutting its debt levels. They will decide whether to release about 8bn euros from a 110bn bailout package agreed last summer.

There has been renewed optimism this week that eurozone leaders may finally be ready to take decisive action to tackle the debt crisis. This has strengthened riskier currencies slightly such as the Pound, and as a result exchange rates for GBP/USD have risen slightly.

However, analysts said the brief rally was down to an absence of bad news rather than expectations of a concrete plan to sort out the bailout fund, and the gains are likely to be short-lived given the lukewarm German support.

G20 leaders met over the weekend to discuss the best way forward, but EU officials stressed that no grand plan of action had been agreed. However, markets remain highly volatile, with investors remaining sceptical of policymakers’ ability to solve the crisis quickly.

So will the Pound go up or down?

Many analysts think Sterling could face more selling pressure on persistent speculation the Bank of England may implement more monetary stimulus before the end of the year, in order to boost the lagging UK economy. This would require the BoE to print more pounds and flood the market with the currency, swamping demand. This in turn will likely weaken Sterling and exchange rates could drop.

If however there is agreement in Europe, it could strengthen the Euro and pull rates upwards.

What do the analysts say?

“Every time the market gets its hopes up that a solution to the eurozone crisis is near, the rug gets pulled from under it,” said Ben Potter at IG Markets. “Only when we see firm action being taken, rather than hollow promises, will confidence and sentiment begin to improve.”

So there is still scepticism that there will be resolution today, and exchange rates are likely to remain volatile as a result.

Today’s Data

The GFK survey from Germany is released today. This measures confidence in the EU’s largest economy, but is likely to be overshadowed by the continued EU debt crisis and the meetings today to try and resolve it. We also have French GDP figures, showing any growth or lack of growth in the economy.

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