Euro falls after initial Greek optimism

19 June, 2012

Graham Harborne

Yesterday saw another day in the currency markets where early euro optimism was quickly erased and the single bloc currency fell against a basket of currencies. Sterling reversed earlier losses against the euro as Spanish borrowing costs soared to levels seen as unsustainable, and likewise the dollar gained nearly 1 % against the ever fading euro.

The euro retreated as initial relief at pro-bailout parties winning in Greek elections, removing the immediate threat of the country leaving the single currency, was replaced by concern over the huge problems still facing the euro zone.

The euro has lost 3.5 percent against the pound this year as investors seeking to exit the euro zone piled into UK gilts in search of safer havens but with the possibility of the Bank of England increasing their QE policy next month there could well be a lot of volatility between the 3 major currency pairs over the coming weeks.

“Our safe-haven status is still rock solid, but sentiment is probably going to be negative ahead of the next MPC minutes,” said Kit Juckes, currency strategist at Societe Generale.

“I think there’s now a heightened expectation of more from the next meeting so I don’t think we’re going to turn sterling sentiment around in a hurry, and in that sense I think it’ll take a while to squeeze out all the shorts.”

Today we have UK CPI data and German ZEW data which will possibly give hints to the BoE’s next move and also just how much of a toll the eurozone crisis is having on their largest economy. Markets will also be keeping an eye out for any ‘action plans’ emerging from the G20 summit and also eyes will be kept firm on Spanish yields which yesterday rose above 7% with 7.5% being seen as an unsustainable level.

In the Euro 2012 last night we saw 2 of the pre-tournament favourites qualify for the last 8. World Champions Spain scraped a 1-0 win against Croatia and their government will be hoping that the country itself can scrape through the current woes in their banking sector. It was a ‘played 3 lost 3’ scenario for Ireland as they crashed out to Italy. Ireland have been in financial turmoil for years and though it was nice to see them enjoying some tournament football it seems the team like the country is struggling to keep up with Europe’s elite !!

If you dont want to become the Croatia or Ireland of the currency markets do contact your account manager to ensure you dont lose out on the good exchange rates we are currently seeing.