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Euro Plunges to All Time Exchange Rate Low

The euro has dropped to an all-time low against the Swiss franc this morning as traders looked for more aggressive solutions from European leaders to the euro zone’s debt problems. Irish debt was downgraded 5 points last week by the credit rating agency Moodys. Ireland will need at least 6% growth next year to fund the repayments on their debt alone.

The single currency has fallen to 1.2701 Swiss francs its weakest since the euro’s launch in 1999 as investors sought a safe haven in the Swiss currency. The pound is also gaining in value against the Euro but the speed of appreciation has been slower due to publicly owned banks over exposure to Irish paper and derivatives.

State-owned LloydsTSBHBOS announced it was setting aside an extra £4.3 billion in provisions for its Irish loan portfolio. That news, together with the earlier deterioration in consumer confidence, held sterling back on the day.

The euro was continuing to smart from last week’s Irish sovereign rating downgrade by Moody’s. Until European officials clarify how they will address the funding and liquidity problems of countries whose debt burdens are troubling investors we will expect further depreciation in the currencies rate of exchange.

“The ratings change at the end of last week is still keeping the euro under selling pressure,” said Carl Hammer at SEB in Stockholm.

He added that a swap arrangement between the European Central Bank and the Bank of England last week to boost sterling liquidity for Irish banks underlined that their problems had not been fully resolved by the country’s bailout last month.

The ECB expressed “serious concerns” that Ireland’s bailout package could affect the institution’s liquidity operations in the euro zone, while President Jean-Claude Trichet said Dublin needed to stick “rigorously” to the rescue plan.

Analysts said the euro was also struggling after EU leaders last week failed to come up with a substantive plan to bulk up a temporary support fund for the currency bloc’s weaker economies.

“There’s a need to address the underlying risks and structural issues in the euro zone,” said Ned Rumpel, head of G10 currency strategy at Standard Chartered.

The week ahead is relatively thin on financial data but the Bank of England minutes could provoke some volatility when they are released on Thursday.