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Weekly Currency Update

by Sable International | Oct 28, 2011
  • This week the Euro leaders pulled an all nighter of sorts and came to a decision at 4am Thursday morning on how to approach the Euro debt crisis. Some would argue that there is no point to the agreement as the Euro is bound to brake at some point in any case. They have to keep fighting though, they cannot quit the Euro now.

    So what was decided and what are the implications?

    The basic elements of the deal included a 50% cut of the value of Greek debt, reinforcing the region’s banks so they could build a bridge over the troubled waters of a semi-default of the Greek government, and a significantly bigger buffer for the European Financial Security Facility to the level of $1.39 trillion. This was designed in the hope that it will inject optimism into markets and calm the turmoil.

    The effect on the markets were immediate and positive; across the globe stocks improved and optimism increased as the news was welcomed by investors. The Euro is trading at its best levels in over 7 weeks amid optimism European leaders have done enough to contain the debt crisis. Pound Sterling also benefited and it was also trading near a 7 week high vs USD as the markets took a breather and investors sold the safe haven USD.

    With increased optimism, investors are less risk averse. Higher yielding currencies all benefited and we’ve seen the Aussie and Kiwi Dollars jumping to 8 week and 5 week highs respectively. The Rand strengthened 2.5% in a session to a 1 month high.

    Current rates v GBP:

    USD @ 1.6105

    EUR @ 1.1378

    AUD @ 1.5094

    NZD @ 1.9699

    ZAR @ 12.4557

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