UK Pound Falls on S&P Statements About Bank Stability

Posted January 28, 2010

The euro slid against most global currencies on debt issues in Greece and Portugal. The UK pound weakened against the US dollar and the Japanese yen. The Canadian dollar weakened against the US dollar again as oil fell below $73 a barrel. The Polish zloty strengthened against the euro as the eastern Euro-Zone economy grows. The Chilean peso slid further against the US dollar for a number of reasons. The Indian rupee weakened against the US dollar.


There was plenty of currency activity yesterday as Greece’s budget deficit and debt problems continued to remain unsolved. But Greece is not the only country in financial trouble. Spain has already had its debt rating cut and now Portugal has become another country facing rising budget deficits. Moody’s Investors Service has issued a report warning that Portugal needs to develop a 2010 budget plan that includes deficit reduction.

The euro fell against the US dollar and the yen. The euro was at 125.59 yen and bought US$1.3969. The euro is expected to continue to weaken as long as the debt situation continues to deteriorate. It also fell against the Canadian dollar to C$1.4899 per euro.

The situation in Greece is causing dissent among national leaders. Greece’s Prime Minister George Papandreou has said that Greece did not ask for and does not want a loan from the European Union. China’s analysts have indicated that China should not be counted on to buy bonds sold by Greece.

The UK pound weakened to $1.6141 against the US dollar and to 145.01 yen per pound. The fall was in response to Standard & Poor’s comments that the UK banks are not the most stable banks in the world as they once were. The market collapse cost the UK government 1 trillion pounds to bail out two of its largest banks – the Bank of Scotland Group and Lloyds Banking Group.

The Bank of England has completed its asset-purchase program, and the question now is whether it will be expanded. Chancellor of the Exchequer Alistair Darling has assured markets that the UK will be able to cut its deficit in half within 4 years.

Sterling did rise against a falling euro to 86.44 pence per euro.

Ben Bernanke was officially confirmed to serve a second term as chairman of the US Federal Reserve. The Senate confirmation was expected so had little impact on the markets.

The Canadian dollar weakened against the US dollar to C$1.0664 as oil prices continued to decline. Oil prices fell to $72.93 a barrel for March delivery.  GDP data for both Canada and the US is expected to be released this week and is expected to have an effect on the loonie’s value.

The Polish zloty rose to 4.0787 against the euro. Poland holds the unique status of being the only European Union country that never fell into a recession. The economy is now growing at a faster rate than expected.

The Hungarian forint also strengthened against the euro to 272.15 forints per euro.

Chile’s peso has weakened again against the US dollar to 527.60 pesos per dollar. This is the ninth day of weakening and is due to several factors.  A change in pension fund foreign exchange accounting combined with weak economic data and falling copper prices have all put pressure on the peso.

Argentina’s peso also fell against the US dollar to 3.8160 pesos per dollar.

The Indian rupee weakened against the US dollar to 46.35/36 rupees per dollar. The Reserve Bank of India reviews interest rates and reserve deposit requirements today.