GBP down versus EUR and USD
Weekend press reports reopened concerns on sovereign debt issues. Italian PM Monti was reportedly worried about Spanish budget controls. Meanwhile, Germany’s opposition party, the Social Democrats, criticised Chancellor Merkel’s attempts to increase the eurozone firewall. This will be the key subject of discussion between Finance Ministers and Central Bank governors on Friday when they meet in Denmark. The EU Commission has already circulated a paper giving three options for increasing the size of the EFSF in the hope that this will encourage more international participation should it be needed. The Social Democrats have tended to be more pro-European than Merkel’s CDU so the attack is a little surprising, but is a reminder that moves to increase eurozone bailout funds remains extremely unpopular in surplus countries.
Despite the aforementioned concerns the single currency looks to have gained some support from comments by Chancellor Merkel that it would be ‘catastrophic’ for Greece to leave the eurozone over its sovereign debt problems and that it would be a ‘huge political mistake’ to allow Greece to leave. Many believe that a Greek exit would eventually boost the value of the eurozone, but speculation about possible other departures would clearly wreak havoc with the single currency in the short-term.
GBP/USD has now fallen below $1.5800, with sterling finding little support due to the dearth of data releases today. Weekend press reports concentrated on the political fallout from Wednesday’s Budget and would have made uncomfortable reading for the Chancellor. The pound also lost ground against the single currency with GBP/EUR falling below 1.1960.
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