85 Billion Euro Irish Bailout Signed

European politicians claim that the 85 Billion Euro rescue package signed over the weekend in Ireland will help cease the spread of debt issues to other European nations and bring stability to the Euro. Following severe drops last week, the Euro has managed to strengthen against Sterling since Friday however is sitting more weakly against other major currencies such as the US Dollar. The next few days will be crucial in shaping the volatility as markets weigh up how easily the deal will be implemented and also contemplate the situation in Portugal.

Pound Sterling – UK Markets

The Pound dropped against the single currency over the weekend having closed at €1.1839 against the Euro, gaining 1.2% over the course of the week as Irish and Portuguese debt issues stimulate volatility. The Pound weakened against the Dollar to close down by 2.1% at $1.5656 over the course of last week and is experiencing volatile movement so far this morning. Hometrack has reported that house prices fell by 0.8% in November, the fifth straight month of declining prices. The uncertainty over the effect of government cuts and a popular belief that the house price will decline over the coming months are blamed for curbing demand. This has been reinforced by UK mortgage approval data from the Bank of England this morning which has shown an edging down to 47.2 thousand mortgage approvals in October from 47.36 thousand in September – slightly better than expected but a drop none the less.

US Dollar – US Markets

The Dollar ended the week substantially higher against the Euro at $1.3225, gaining 3.3% as sovereign debt contagion fears and uncertainty over Irish politics dominated the markets. The escalating situation in Korea is also still encouraging flows into the US Dollar as a safe haven currency. The sales activity on Black Friday was described as marginally improved over last year with a year-on-year increase of 0.3%. However, customer numbers were up by 2.2% and online payment service PayPal reported a 27% increase in sales volume. Following, the latter half of last week being quiet on US data with the Thanksgiving holiday, this week sees the return of US economic news with the key release tomorrow being consumer confidence at 15.00 GMT.

Euro – European Markets

The Euro took a battering last week, falling by 3.3%; 1.2% and 2.8% against the Dollar, Sterling and the Yen respectively but has picked up against the Pound over the weekend. Over the weekend, EU ministers have agreed to an 85 billion Euro bailout plan for the Irish republic. The Irish debt levels had been pulling the Euro down, so the deal, now signed, is being put forward by EU politicians as an end to the uncertainty. €50 billion is earmarked to go to the government to help it meet day-to-day finance and the remaining €35 billion is intended to support the Irish banking sector. The Irish will be paying interest on the loan at a rate of 5.8% which is substantially lower than the current yield on Irish bonds. The ongoing effect of the deal on the Euro however, is not clear cut as ongoing protests in Ireland and the looming budget on the 7th December with a very minor coalition majority suggest there is potential for some problems in the rescue package being accepted and implemented yet. Portugal also remains a cause for concern as despite the nation’s officials speaking out to claim a rescue package is unnecessary, a similar sentiment was heard just weeks ago from Ireland before the deal agreed. Portugal did pass its own austerity budget on Friday aiming to reduce the deficit from 7.3% to 4.6% of GDP over the course of 2011. Consumer, economic and industrial confidence figures from the EU this morning have all shown slight improvements in November.

Other Currencies – Highlights

The Japanese parliament has passed a $61 billion stimulus package which is intended to boost employment and consumer spending and help small businesses. The Yen has weakened against the Dollar over the past month, but appreciated against Sterling and the Euro last week by 1.6 and 2.8% respectively. Japan has recorded its 20th successive month of falling consumer prices. The rate of Japan’s exports to the rest of the world has been declining for the past eight months with currency appreciation being the most significant problem. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.