Eurozone Implosion gets underway

Monday saw what could be the beginning of the Eurozone Implosion. Events took an unexpected turn as stronger core members started to show signs that they too were starting to feel the heat.

The Dutch PM and his cabinet resigned from parliament yesterday after budget negotiations broke down over the weekend. They refused to support the proposed EUR 16bn worth of cutbacks. What is left of the coalition government must now hold an election as it doesn’t have the majority votes to get any new budgetary decisions approved. The lawmakers meet later today to decide how best to proceed. The inevitable delays caused by the elections are likely to result in the Netherlands AAA credit rating being downgraded.

Further east, protestors took to the streets in Prague to protest over the Czech government’s proposed austerity measures. They have one of the lowest Debt/GDP figures and their borrowing costs are below a lot of their Eurozone counterparts.

These two outbursts have raised the question as to whether the strict new budget cuts are achievable, and the extent to which some governments are left picking up the pieces for the dramatic collapse of the PIIGS. It appears that general confidence around structural reform and austerity is in decline.

The reaction saw GBPEUR rise throughout the course of the day as a market-wide panic set in. European equities posted another day of spectacular losses with Europe’s biggest companies being devalued collectively by an estimated EUR 122.3 billion. This decline was attributable to an endless list of things going awry in Europe. Poor European manufacturing data, increased tension over the French polls, negative GDP projections by the Bank of Spain and now the Netherlands and the Czech Republic all contributed to the Manic Monday Madness.

Inflation figures for Australia released earlier this morning saw annual inflation figures come in lower than expected at 2.1%. The Reserve Bank of Australia has responded by committing to lower interest rates. AUD dipped this morning against the USD and JPY.

The Dutch treasury are auctioning EUR 2.5bn worth of 2 year and 25 year bonds this morning. This will be interesting considering recent developments. Spain and Italy also go to the auction room this morning in a bid to raise some much needed cash.

Public sector borrowing figures for the UK and US consumer confidence figures for the US are out later today.

Latest exchange rates at time of writing

Indicative Rates Sell Buy
GBPEUR 1.2250 1.2267
GBPUSD 1.6123 1.6148
EURUSD 1.3157 1.3180
GBPJPY 130.57 130.84
GBPAUD 1.5674 1.5700
GBPNZD 1.9835 1.9864
GBPCAD 1.5964 1.5990
NZDUSD 0.8118 0.8133
GBPZAR 12.6113 12.6570
USDZAR 7.8230 7.8613
GBPPLN 5.1345 5.1616
EURJPY 106.68 106.95

Please note these rates are “interbank” rates ie they indicate where the market is currently trading and are not indicative of the rates offered by World First. 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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