The pound has slipped to a four month low against the greenback after further concerns of contagion from the Eurozone continue to mount.
Investors have fled to the Dollar after growing worries about Spain’s banking sector have dominated global headlines. The pound dropped by 0.5% to the $1.556 level marking the worst performance since late January. The pound is expected to remain secure against the Euro as investors continue to regard sterling as a safer haven than the troubled single currency.
Several observers are predicting that the pound will continue to remain stronger compared to the Euro but predict that both currencies are due to weaken to lower levels against the dollar. Next month it could reach the $1.535 level.
The fear that Spain will soon be on the receiving end of an EU bailout fund has seen the countries bonds trading at record high levels above 6.5%, very close to the 7% level beyond which borrowing costs are deemed unsustainable over the long term. The government’s decision to introduce a new bond scheme aimed at funding ailing lenders and debt stricken regions has raised concerns over the country’s already stretched finances.
At a press conference some hope of relief was revealed by European commission president José Manuel Barroso and the European Commissioner for Economic and Financial Affairs Olli Rehn. The pair said that they are prepared to extend Spain’s deadline for bringing its budget deficit into line by a year. To qualify, Spain must present a solid budget plan for deficit reduction in 2013-2014, if it can do that, Madrid will be given until 2014 to bring its deficit down to 3% of GDP.
Barroso hinted that the Eurozone will create a closer fiscal union saying; “We intend to look at steps towards full economic union. We remain convinced of the benefits the common currency has delivered and will do in the future… Many member states now argue in favour of a Common Deposit Guarantee Scheme.”
It will be interesting to see how the statements and latest EU report effects the exchange rate markets. It seems that finally some plans are being put into place.
The Pound to Euro exchange rate is currently trading at 1.253
The Pound to US Dollar exchange rate is currently trading at 1.555
The Euro to Australian Dollar exchange rate is currently trading at 1.274
The Euro to US Dollar exchange rate is currently trading at 1.241
The Euro to Pound exchange rate is currently trading at 0.798
The US Dollar to Japanese Yen exchange rate is currently trading at 79.101