Euro Strengthens As EU Agree On Permanent Rescue Fund

There has been a wealth of mixed news and data from the Euro zone over the past 48 hours. The Euro has shrugged off negative events such as the downgrading of Ireland’s credit rating and further speculation over Spain’s stability and has strengthen in response to the agreement of EU leaders to set up a permanent rescue mechanism for EU nations. Differences in opinion between EU leaders had been overshadowing the currency lately so the new formal commitment to supporting the single currency has boosted the Euro.

Pound Sterling – UK Markets

The Pound gained on the Euro on Thursday but has dropped back so far today as a result of the positive European outlook. Sterling has also been losing gains against the Dollar made mid-week after the Pound initially gained on the back of a Bank of England financial stability report with regards to inflation showing that expectations were their highest for two years. UK residents are bracing themselves as higher prices are expected over the next five years with inflation expected to hit 3.9 percent next year – almost twice the Bank’s target rate of 2 percent. The Bank of England has also warned that problems in the Euro zone are a threat to UK banks with many having substantial investments in the Euro countries. The Bank of England has called for stringent new tests in Europe. It has also stated that UK banks need to maintain capital to protect themselves by paying less dividends and bonuses.

US Dollar – US Markets

The US Dollar has been making back some of Wednesday’s losses on Sterling on the back of strong manufacturing data and initial jobless claims which fell more than expected. However in a similar story to the Pound, the US Dollar has been losing out to the Euro so far today highlighting that its strength is often reliant on its status as a safe haven currency and Euro weakness.

Euro – European Markets

The Euro has been gaining on the Dollar and Sterling so far today as EU members have agreed to establish a permanent rescue mechanism to tackle sovereign debt problems. The changes will involve an amendment to the Lisbon Treaty and ensure rescue funds are available permanently from 2013. This has helped the Euro recover despite other news such as Moody’s slashing Ireland’s credit rating by five notches to Baa1 over banking concerns and growth prospects. This follows the passing of a vote to accept the EU bailout in Irish Parliament on Wednesday with it now being the second nation after Greece to be rescued. Spain and Belgium have also been under scrutiny this week with their ratings vulnerable so the Euro has done well to shrug off this in light of the EU’s decision on the bail out package. On another positive, German business confidence has unexpectedly risen to a record level which is the highest since records began in 1991.

Other Currencies – Highlights

The situation in Europe as well as weakening oil prices has caused the Canadian Dollar to drop against most of its major counterparts. Some economists have predicted that the currency will trade on parity with the US Dollar by the end of March 2011. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.