The Pound has struck a new 3 ½ year high against the Euro this afternoon after the single currency weakened further on the back of comments made by the German Finance Minister Wolfgang Schaeuble. The minister said that Spain must take guarantees for its bailout funding, piling on the pressure and worries that European leaders will struggle to halt their sovereign debt problems.
The Euro hit session lows at $1.2229 in the wake of Schaeuble’s comments and was last at $1.2242, down 0.3 percent on the day. Spanish 10-year yields climbed back above 7 percent after Schaueble’s comments, from about 6.9 percent just before. Spain earlier sold 3 billion Euros in debt at a higher cost than previous auctions.
The UK currency also edged higher towards 1.57 versus the U.S Dollar but in the main the Pound continues to struggle against the commodity-driven currencies like the Australian Dollar and South African Rand. The Pound has surged to a rate close to 1.28 versus the Euro, despite speculation over a deeper recession and further quantitative easing from the Bank of England. This provides a strong indication of just how weak demand is for the Euro and it now seems inevitable that we’ll see long-term resistance levels challenged in the region of 1.30.
The increases in the UK currency come after the International monetary fund suggested that the UK government should consider slowing the rate of cuts and tax hikes. It said; “If growth does not take off and unemployment fails to recede even after substantial further monetary stimulus and strong credit easing measures have been given time to work, the policy response should include a further slowing of fiscal consolidation,” the IMF said.
“In particular, fiscal adjustment for 2013-14 would need to be scaled back if growth does not build momentum by early 2013.”
Analysts expect the euro to retest a two-year low of $1.2162 hit last week because investors, discouraged by a lack of progress being made towards solving the euro zone debt crisis, continue to shun the currency in favour of safer havens.
The Australian and New Zealand and Asian stocks advanced amid speculation the Federal Reserve and the Chinese government will take further steps to encourage economic growth. The dollar fell earlier against all of its 16 most-traded counterparts as demand for safety ebbed.
The Pound to Euro exchange rate is currently trading at 1.281
The Pound to US Dollar exchange rate is currently trading at 1.571
The Euro to Australian Dollar exchange rate is currently trading at 1.117
The Euro to US Dollar exchange rate is currently trading at 1.226
The Euro to Pound exchange rate is currently trading at 0.780
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