Currency Markets Find it Difficult to Ignore the Greek Debt Problem

Home » Foreign Currency News » Currency Markets Find it Difficult to Ignore the Greek Debt Problem

The currency markets are finding it difficult to ignore the Greek debt problem as the Euro struggle to remove the weight of debt from its shoulders. Despite the EU agreement two weeks ago to offer Greece a second round of bailout funding and to broaden the scope of the European Financial Stability Facility, investors remain sceptical.

Undoubtedly there will be reluctance from investors to put their money into countries which might go the way of Greece, Portugal and Ireland. Those fears was not allayed last week when Moody's put Spain's credit rating on review for a possible downgrade while and Standard & Poor's cut Cyprus's rating from A- to BBB+. This week Italian President Berlusconi has insisted that Italy is financially solid and there is no threat to the Eurozone that Italy will suffer a Greek-style financial crisis. It might be that Berlusconi’s comments, whilst trying to reassure the markets, have had the opposite effect as investors add Italy to the growing list of countries in trouble.

Aside from the debt issues, the Euro had taken a knock from disappointing economic data. Consumer and industrial confidence have fallen this week while German unemployment went down by less than forecast. Inflation was also lower than expected at 2.5% instead of the 2.7% that had been priced into the Euro.

Today the European Central Bank is expected to keep interest rates on hold at 1.5% while setting the scene for an increase in the next couple of months. One wonders if raising interest rates at a time of crisis in the Eurozone and with inflation dropping is what is required. Hopefully the ECB know what they are doing.

To add to the Euro’s woes, Sterling has perked up this week avoiding the negative effect of two weak figures from the Confederation of British Industry last week, probably because investors were too busy selling the Euro and giving a collective sigh of relief when the US announced a deal to increase it’s debt ceiling.

On the UK data front, there has been an increase in the number of UK mortgage approvals and, although it was lower than forecast, the first estimate for UK second quarter GDP came out at 0.2%. Although, it was lower than hoped, it was a relief it did not turn out worse.

Sterling's relatively decent performance over the last week has seen the currency go from £/€ 1.1250 to touch £/€ 1.1500 today. Overall, it is a welcome reminder that investors are affected by fiscal responsibility and AAA credit ratings, neither of which the Eurozone can demonstrate.

If you need to transfer money to or from Spain when buying or selling a property or if you have to pay a Spanish mortgage, contact SAT Worldwide on +44 (0) 1491 577550 or .(JavaScript must be enabled to view this email address).

SAT Worldwide is a regulated by the HMRC as a Money Service Business (No. 12251701) and as a Small Payment Institution by the FSA (No. 509587).