The pound has dropped to its lowest level against the Dollar for two months amid fears that the Euro crisis will spread across the world and damage the global recovery.
The currency weakened after 16 Spanish banks were downgraded by the credit rating agencies Finch and Moody’s. The move sparked panic in investors causing a large number to start looking abroad to the safe haven currencies of the Japanese Yen and US Dollar. As a result the pound rose higher against the Euro but saw a slump against the Dollar.
Fitch said; “The downgrade of Greece’s sovereign ratings reflects the heightened risk that Greece may not be able to sustain its membership of economic and monetary union… In the event that the new general elections scheduled for 17 June fail to produce a government with a mandate to continue with the EU-IMF program of fiscal austerity and structural reform, an exit of Greece from the EMU would be probable.”
As a result the euro fell against the pound to 80.25, partly reversing a rise over the past two sessions after it hit 3-1/2 year lows at 79.50 pence on Wednesday.
Investors will now be looking to the weekends G8 meeting, being held at Camp David in the United States. They will hope to see the leaders of the 8 most wealthy countries come up with a strategy to reverse the ailing single currencies fortunes.
Investor appetite for the pound was further damaged by the Bank of England’s inflation report, which did not rule out the use of further quantitative easing. If the decision to implement further easing is carried out then the pound will drop further against the pound, however with the volatile situation of the Euro the pound is expected to stay in the 80pence region. If Greece does default and is forced to withdraw from the single currency expect the pound to strengthen considerably.
The Pound to Euro exchange rate is currently trading at 1.242
The Pound to US Dollar exchange rate is currently trading at 1.581
The Euro to US Dollar exchange rate is currently trading at 1.272
The Euro to Pound exchange rate is currently trading at 0.804