The Single currency has posted record losses against a basket of currencies after fears grow that the nation will require a bailout similar to Greece, but on a far bigger scale.
Doubts have lingered over the country’s finances since Prime Minister Mariano Rajoy asked the other members of the Eurozone to bailout the nation’s debt ridden banks. Several Billion Euros were given in aid but now it is becoming increasingly clear that the entire nation will require a handout. This time such a bailout could cost several hundred billion Euros.
“What began as a Spanish banking bailout looks to be moving rather quickly towards a possible sovereign bailout. Overlay that with increasingly negative news on Greece and you get a fairly negative mix, so the path of least resistance for the euro is down,” said Jeremy Stretch, currency strategist at CIBC.
Spain’s autonomous regions have now reached breaking point, with many facing total financial ruin after their leaders wasted cash on unnecessary building projects and poor management. Some regions contain airports that are unused as well as thousands of homes that lie empty. The first region to come forward, cap in hand was Valencia. The move shook investor nerves and fears are growing that many other regions will come out of the woodwork to beg for financial assistance.
“The fear now is that, given its debt woes, Spain may eventually need a bailout from the International Monetary Fund or the euro zone’s rescue fund,” Justin Harper of IG Markets told the BBC.
“That is driving investors away from the euro to other relatively safe-haven assets.”
As the crisis rolls on it is increasingly difficult to see a way out for Spain. Unemployment continues to rise after reaching the shocking 25% level; riots and protests are a daily occurrence in several of the big cities and in the midst of the growing anger from its people, Rajoy recently announced new, tough austerity measures.
“European authorities are still failing to at least stabilize investor confidence in euro zone sovereign debt with Spanish government bond yields rising to new post-euro-zone record highs”, said Lee Hardman, currency analyst at the Bank of Tokyo.
The Pound has reached its highest level for more than 3 ½ years against the Euro as investors continue to flee the battered single currency. The Pound has benefited from investors looking to cut exposure to peripheral Eurozone assets by buying UK government bonds, considered a relative safe haven from the Euro zone debt crisis, and more gains against the euro were expected. The US Dollar hit a fresh two-year high against the Euro as investors flocked back to the currency for its safe haven status.
Unless the Eurozone leaders come up with a surprise piece of good news or a sound strategy to halt the ongoing crisis then we can expect the Euro to continue to take losses against most currencies. There is some god news despite the bad. The weakening of the single currency means that the regions exports are cheap but it’s doubtful that the battered Euro nations aside from Germany will take advantage of it.
The Pound to Euro exchange rate is currently trading at 1.282
The Pound to US Dollar exchange rate is currently trading at 1.553
The Pound to Australian Dollar exchange rate is currently trading at 1.510
The Euro to US Dollar exchange rate is currently trading at 1.210
The Euro to Pound exchange rate is currently trading at 0.779
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