EU leaders have
announced a second bailout package for Greece, this time involving private as
well as government investors. This could in time be seen as a partial default
by Greece, when the credit agencies such as Moodys and Standard & Poors next
produce ratings, but for now the perception is that the outcome is as good as
it could have been – leading to some strength for the Euro.
Sterling has done reasonably well out of the crisis against other currencies,
with US Dollar rates showing their biggest weekly increase since May. Rates for
sending payments in US Dollars are now near their best levels for 6 weeks.
With very little data due out on Monday, markets might now settle down, with
two main points to consider for the short term:
- Will
the Euro strengthen further if the Greek bailout package is seen as positive by
the rating agencies?
- Will the Pound weaken if the phone
hacking scandal continues to reduce confidence in the stability of the UK
government?
With these in
mind it is worth remembering that you can fix exchange rates in advance, to
eliminate the risk of falling exchange rates, using a small deposit. Contact a foreign
currency broker to discuss your options, and make sure
you keep updated with the latest currency news.
The Greek deal
has certainly bought some time for the likes of Italy and Spain, who risk
getting dragged under pressure from bond markets. Time will tell how markets
react, but history has taught us so far that Eurozone coherence in protecting
the solvency of troubled nations tends to lead to Euro strength and lower
exchange rates.
As always, the
UK is heavily exposed to many European banks, particularly in Spain, so even if
there are troubled times ahead for the single currency, we will not necessarily
see a weakening Euro against the Pound. For any real improvement in exchange
rates, we really need the Bank of England to start talking about UK interest
rate rises, which they indicated in their minutes this week is not even nearing
the bottom of their monetary agenda at present.
