Euro slippage continues ahead of summit

Is your high street bank ripping you off

The lack of any real appetite for risk continued yesterday as European equities and the single currency both lost ground through the session. The big fear is the summit of European leaders later this week and the prospect that whatever plans are put forward to engender growth or loosen austerity in the Eurozone will be voted down by the Germans.

Sterling, the US dollar and the yen all gained versus their European counterpart yesterday as investors increased bets that the summit would be a disappointment.

Spain formally applied for a banking bailout yesterday although the figures needed and terms agreed upon are still very much in the air. We discussed the issue of ‘seniority’ last week; the issue that any debt taken from the European Stability Mechanism may be more senior to that of ordinary Spanish debt and, therefore in a default scenario, would receive their money first. This harkens back to the haircut on Greek debt earlier in the year during which the ECB was unwilling to take a loss, therefore denigrating other bondholders. This issue has not been agreed upon and is possibly the most important stipulation of any upcoming bailout measure.

Spain’s bond yields halted their winning streak yesterday ahead of the EU summit and we have an auction of Spanish debt due this morning although the duration is very short term. That being said, this time last week it cost the Spanish 5% to borrow money for a year.

The ratings agency Moody’s has followed through on its warning that Spanish banks were likely to take a ratings hit by cutting 28 banks yesterday. The reasons behind the downgrade will surprise nobody; decreased access to wholesale funding markets, increases in bad loans following further deterioration in the housing market and therefore, the expectation of further assistance needed from the sovereign.

The calamitous nature of Greek politics was back with us yesterday as the newly installed Greek Finance Minister resigned having held the job for a mere 3 days. It is likely due to health reasons following his hospitalisation the day of the announcement. Prime Minister Samaras has also had surgery on a detached retina that he suffered last week however, on doctor’s orders, is not allowed to fly for 2 months. He may be getting the train to Brussels for Thursday then.

Cyprus became the latest member of the EZ-17 to ask for a bailout yesterday. Its banks, and a large part of its economy, is contingent on Greece and it’s a wonder how they have not asked for one before now. The numbers involved are not going to scare the horses we believe.

Indicative Rates Sell Buy
GBPEUR 1.2463 1.2483
GBPUSD 1.5609 1.5630
EURUSD 1.2519 1.2539
GBPJPY 124.20 124.42
GBPAUD 1.5537 1.5562
GBPNZD 1.9732 1.9756
GBPCAD 1.6003 1.6053
NZDUSD 0.7902 0.7920
GBPZAR 13.17 13.22
USDZAR 8.4278 8.4707
GBPPLN 5.2963 5.3180
EURJPY 99.60 99.90

Please note these rates are “interbank” rates ie they indicate where the market is currently trading and are not indicative of the rates offered. Rates are dependent on amount transacted. It is important to remember that foreign exchange rates fluctuate all the time. The rate you will receive will depend on the amount and currency you require.

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