Euro Stumbles As Irish Debt Crisis Fuels New Political Uncertainty

Despite the announcement of an EU rescue package to Ireland pushing the Euro higher in the first instance over the weekend, the aftermath of political uncertainty that has since risen to the surface has caused the single currency to weaken. The Pound has climbed back against the Euro as it has emerged that the Irish Green Party has called for a general election throwing into some doubt whether the new budget will be passed in December, or whether a new Government would reject the terms of any rescue package.

Pound Sterling – UK Markets

The Pound closed at €1.1697 and weakened against the Dollar slightly to close at $1.5963. Sterling has been moving up against the Euro today in the wake of Ireland’s political uncertainty. Following a quiet day for data yesterday, this morning’s mortgage approval data for the UK has revealed a slowing pace for October. Other news covering the housing sector today includes a report from the Commission of Rural Communities suggesting that living costs are up to 20% higher for those in rural communities and a report from Nationwide to predict that house prices will continue in the near future as buyers are deterred by the Government’s spending cuts.

US Dollar – US Markets

The Dollar closed the day higher against the Euro at $1.3647, gaining 0.2%, as earlier Euro gains on news of the Irish deal were reversed. The Dollar has also rallied as artillery fire in a border region between North and South Korea has provoked the currency to be used as a safe haven by investors. In data out today we have the first revision of US Q3 GDP which is expected to come in at 2.4%, however the markets main focus will be on the core personal consumption expenditure figure which is expected to be unchanged at 0.8%.

Euro – European Markets

The Euro started brightly yesterday on the news that the Irish had asked for EU help, but later suffered as it became apparent that the economic crisis has sparked a political debate with an earlier than expected election possible, throwing doubt back onto the rescue deal. Since the governing party is in a minority and rules by coalition, the fresh uncertainty has driven the Euro lower. The Irish PM, Brian Cowen is resisting calls for a snap election, but this could be forced upon him. Moody’s have also suggested that they are reconsidering Ireland’s credit rating although this will not come as a surprise. Today’s PMI services and manufacturing data from Europe, that both came in higher than expected, have therefore not managed to help boost the Euro. The same is true of the strong German manufacturing and services data as well as on target GDP figures, indicating clearly the grasp that the Irish situation has on overall Euro movement at present.

Other Currencies – Highlights

The Canadian Dollar has fallen against the US Dollar as demand for assets such as stocks and crude oil has weakened and in response to the wider Irish debt issue with risk aversion strategies becoming more prominent. It is being forecast that Brazil will miss its next inflation target for the first time since 2003 as commodity prices increase and Government spending expands. This in turn is raising the forecast for an interest rate rise. As one of the only currency firms that offer Brazilian Real, get in touch with your broker if you have any requirements involving the Brazilian currency. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.