Busy Weekend For European Officials

The Pound fell 0.55 percent against the Euro over the course of last week until Sunday and by 1.09 percent against the Dollar, spurred on in its descent by the Bank of England’s decision to leave interest rates held at 0.5 percent. Over the weekend, EU leaders have made agreements to increase the lending capacity of the European Financial Stability fund from 250 billion to 440 billion Euros to enable the purchase of bonds from distressed Euro zone states. This move has come earlier than many expected, meaning that the fund could now be used to offer bailouts to any states beyond Greece and Ireland that require aid. This may shore up confidence in the ability of the Euro zone to deal with spiraling debt and so far today has seen the Pound dropping against the Euro.

Pound Sterling – UK Markets

Sterling is falling to its lowest levels so far this year against the Euro. This follows last week’s Bank of England interest rate hold as well as progress made over the weekend by European leaders regarding changes to the bailout funds available for struggling nations. Sterling has also dropped against the US Dollar despite positive manufacturing data from the UK towards the end of last week. The uncertainty that the Japanese earthquake has bought to the markets has made some cautious of investing in higher yielding but more risky currencies which has strengthen the USD as a safe haven.

US Dollar – US Markets

The Dollar has gained on Sterling. Its movement against the Euro has been a little more volatile with the US currency dropping over the weekend as European leaders made progress on bailout funds – but the Dollar has been picking back up so far today. As one of the safe haven currencies, the Japanese earthquakes will have caused some funds to flow to the Dollar. There is also expectations for some of this week’s US data such as industrial production and manufacturing on Thursday to come in positively.

Euro – European Markets

Surprise agreements this weekend by European officials have worked to restore some confidence in the Euro, just as fears had began to re-circulate throughout last week about European debt and whether nations such as Greece may default. One of the biggest concerns was that officials from different European nations would not be able to agree on a new plan for bailout funds and bond buying but an agreement has been reached much sooner than many predicted. The bailout fund will be increased to 440 billion Euros to make sure there are enough funds available for any further nations beyond Ireland and Greece that need help. It will also be available to allow Europe to buy the bonds of distressed states directly from Governments. The decision was taken to ease the terms of Greek rescue loans.

Other Currencies – Highlights

The Japanese Yen has undergone volatility following the tragic earthquake. Overall last week, the Pound fell by 1.55 percent against the Yen as the fact that the Yen is a safe haven actually caused many global investors to respond to the crisis by putting funds into the safe Japanese currency. The Bank of Japan have held an emergency meeting and have decided to pump 15 trillion Yen into markets to ensure financial stability as well as increasing the size of its asset purchasing plan to shield the economy from the effects of the disaster. There are serious concerns that areas such as production are set to decline in the aftermath so the further economic effects of the event will be revealed with time.