British pound sterling: Currency plunges against euro and higher-yielding currencies, progress in Europe offers EUR some relief

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Published on Friday, 29 June 2012 11:51

Written by Sam Coventry

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"The Pound plunged against the Euro over-night, falling as low as 1.2366, after European leaders announced softer terms on loans to Spanish banks in many see as a decisive step in resolving the sobering debt crisis" - Adam Solomon at TorFX.

Global FX: The pound sterling (Currency:GBP) is on the defensive as we head into the afternoon session in London. (To access the latest investment-grade forex forecasts, please see our IMT site, free access granted through this Facebook entrance path).

A look at the spot exchange rates show the pound vs euro to be 0.47 pct lower at 12409, the pound to dollar exchange rate 0.58 pct higher at 15607 and the pound to Australian dollar rate 0.8 pct down at 1.5328.  



"The Pound plunged against the Euro over-night, falling as low as 1.2366, after European leaders announced softer terms on loans to Spanish banks in many see as a decisive step in resolving the sobering debt crisis. The EU  President Herman Van Rompuy said that officials have agreed to drop the condition that emergency loans to Spanish banks give their governments preferred creditor status," says Adam Solomon at TorFX.

Indeed, the move should help push down Spanish bond yields from the current elevated level, while the Euro advanced by the most this year following the announcement.

Earlier this month, Spain agreed to take bailout loan of as much as €100 billion to help capitalize its ailing banking sector.

The announcement also had a major impact on risk sentiment with the Pound rising through 1.5650 against the U.S Dollar, as the renewed mood of optimism sparked a sell-off of save haven currencies.

"The UK currency lost further ground against the Australian Dollar, however, as the higher yielding currencies all made strong gains over-night. Asian stocks advanced following the Euro-zone announcement, while the Pound also traded lower, after a report showed UK consumer confidence failed to improve in June," says Solomon.