GBP/EUR reaches 19 month high as Spanish bond yields creep towards the crucial 7% mark

Tom Tong17/Apr/2012Currency Updates

GBP

Sterling rose to its highest in 19 months against the euro yesterday, and is poised for more gains as concerns about budget problems in Spain have caused Spanish borrowing costs to jump and prompted investors to seek alternatives to the common currency. The pound also benefited after Standard & Poor’s reaffirmed Britain’s top-notch AAA credit rating on Friday, reflecting an expectation that the government will continue to consolidate its public finances. However, sterling could come under pressure if UK jobs data on Wednesday are weak or if Bank of England minutes on the same day suggest further quantitative easing remains a possibility. Euro zone worries initially weighed broadly on riskier currencies against the safe-haven dollar. However, sterling overcame earlier weakness to climb 0.3 % against the dollar.

EUR

The Euro has once again hogged the headlines for all the wrong reasons during yesterday’s session in the currency markets. Another bad day for the Euro was driven by the news that Spanish 10-year government bond yields broke above 6 percent for the first time this year, sparking concerns about the prospect of a new bout of financial stress in the euro zone. To give some prospective, many fear that they could creep above 7 percent, the level that prompted Greece to seek a bailout. This caused the 19 month low versus sterling, however against the dollar the Euro actually climbed. The single currency breached the $1.30 against the dollar in early European trading but ‘risk-on’ trading environment signalled a strong reversal as the Euro finished 0.5% up against the greenback.

USD

The US Dollar came under quite a large amount of selling pressure in the markets yesterday as global stocks showed signs of recovering. Adding to this, yesterday afternoon’s US Retail Sales numbers thrashed expectations, adding to the ‘risk-on’ trading environment, which caused further downside for the safe-haven Greenback. After early gains the dollar fell against both sterling and single currency.

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Written by Tom Tong

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