As Spanish bond yields spike the pound to euro engages recovery mode, pound to dollar awaits more concrete directions

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Published on Monday, 18 June 2012 09:33

Written by Sam Coventry

Sterling is trading at €1.24 this morning and we are not giving up on higher targets, even with the worst case Greece scenario avoided" - Richard Driver at Caxton FX.

Global FX: The focus has already shifted away from Greece to Spain where the 10-year Spanish government bond yield has this morning hit euro-era highs above 7 pct.

As such, the pound to euro exchange rate is 0.18 pct down at 1.2412; the currency has been in recovery mode following a sharply lower open in line with market optimism following the Greek poll results which boosted demand for the euro.

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The pound to dollar exchange rate is 0.15 pct down at 1.5688. This currency pair has been trending sideways since today's market opening.

The start to today's proceedings was a positive one for the euro after Greece elected to keep the euro but doubts clearly remain over Greece’s political situation.

In addition to concerns sparked by Spanish bond yields, the euro’s gains were capped by the prospect of more political wrangling in Greece as New Democracy attempts to form a coalition government.

"In addition to this, even New Democracy has pledged to renegotiate the terms of the second Greek bailout, so the market is far from getting ahead of itself. Sterling is trading at €1.24 this morning and we are not giving up on higher targets, even with the worst case Greece scenario avoided," says Richard Driver at Caxton FX. 
 
The dollar weakened off further as US data disappointed and Greece gave global sentiment another lift.

US economic data was awful on Friday and triggered a considerable dollar sell-off on Friday; manufacturing, consumer sentiment and industrial production figures were all poor. This once again saw investors step up their bets that we will see further monetary easing from the US Federal Reserve.

The slowdown in the US economy is likely to prompt the Fed to act at some point, though Wednesday’s meeting will probably prove too soon.

"With Greek euro-exit concerns eased somewhat by yesterday’s election victory for New Democracy, the dollar has weakened off. We continue to foresee another major decline in the EUR/USD rate, which will drag this pair lower from its current $1.5650 level," says Driver.