Expectations among investors and traders continue to build as they await solid confirmation that the European Central Bank will implement its scheme to lower the borrowing costs for Italy and Spain. Many believe that the plan could be brought into action as soon as next month to assist the nations struggling most from high interest rates. Spain’s interest rate for its bond purchases still lingers around the dreaded 7% mark and the belief that the country will soon be forced to request a full scale bailout from the ECB lingers in investors’ minds.
“We are expecting the euro to rise to $1.26 in a month’s time and $1.30 in three months partly due to renewed optimism about the euro zone and partly because of the dollar’s weakness,” said Michael Sneyd, FX strategist at BNP Paribas.
“The main obstacle is Spain and even there we think it is only a matter of time before they seek aid. They do have a bit more time to sort out their position.”
The optimism was also easing pressure in the Spanish and Italian debt market. Spain’s 10-year bond yields were 4.5 basis points lower at 6.75 percent, with the Italian equivalent 6 basis points lower at 5.94 percent.
The strengthening of the single currency could be short-lived however if doubts over whether Europe’s leaders will deliver sneak into the markets. It wouldn’t be much of a surprise seeing the track record of the EU in the past.
The main sticking point to the ECB plan is the stipulation that it would only intervene if governments applied for assistance directly. As we have seen over the past few weeks in regards to Spain, Prime Minister Mariano Rajoy insisted that Spain would not need any bailouts but a few days after those statement the country’s banks received a bailout of several billion Euros. Germany has strongly opposed the bailout plans but Angela Merkel appears to have won the backing of her government to support the ECB measures.
With many investors hoping that an end to the Euro Crisis is in sight the EU leaders are going to have to deliver or risk the Euro breaking up entirely.
The Pound to Euro exchange rate is currently trading at 1.259
The Pound to US Dollar exchange rate is currently trading at 1.562
The Pound to Australian Dollar exchange rate is currently trading at 1.476
The Euro to US Dollar exchange rate is currently trading at 1.240
The Euro to Pound exchange rate is currently trading at 0.793
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