The pound has dropped from a one week high against the dollar after demand for safe haven currencies rose.
Worries over the poor economic data out of a number of European countries and rumours that Spain is on the verge of asking the EU for a bailout caused investors to flock back to the greenback and Japanese Yen. The Dollar continues to be favoured as a safe haven even after the US federal bank decided that it would not be implementing further monetary stimulus into its recovering economy.
News that China has cut its interest rates for the first time since 2008 has many investors worried that the powerhouse economy is on the verge of a worse than feared slowdown. Many believe that economic data due to be released at the weekend will contain some very bad news. The interest rate cut could have been a tactic to pre-empt some very grim figures.
The pound saw gains against the Euro as the single currency continues to be dragged down by Greece and Spain. The Bank of England’s decision to not implement further quantitative easing eased some concerns over the state of the UK economy but concerns persist that the measures may well be needed if the euro crisis worsens further.
Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi said while the BoE was standing pat for now, risks of a slowdown were building up given the situation in the Eurozone, Britain’s biggest trading partner.
“Governor Mervyn King may provide a more explicit signal for further easing ahead at the annual Mansion House dinner which would likely weigh further upon the pound especially against the dollar and yen,” he added.
In Spain the credit ratings agency Fitch cut Madrid’s credit rating by three notches, dropping it to BBB on par with the likes of Azerbaijan. Calls for action over the state of the country’s banks have become increasingly louder over the past few weeks and the concentrated pressure of dozens of finance ministers, experts and investors may force Prime Minister Rajoy’s government to concede defeat.
Stefan Ingves, the chairman of the Basel Committee on Banking Supervision. Recapitalizing Spain’s banks should be accompanied by a restructuring of the country’s financial system, he said. “They are going to have to do it one way or the other. The sooner the better. That is how you make the fog lift.”
The Pound to Euro exchange rate is currently trading at 1.236
The Pound to US Dollar exchange rate is currently trading at 1.542
The Euro to Australian Dollar exchange rate is currently trading at 1.262
The Euro to US Dollar exchange rate is currently trading at 1.247
The Euro to Pound exchange rate is currently trading at 0.808
The US Dollar to Japanese Yen exchange rate is currently trading at 79.472
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