The pound regained early losses against the euro following the weekend announcement of a €90 bn bailout of the Irish economy. The markets were rattled by the lack of detail on the rescue package and on news of political uncertainty in the Irish Republic following a call from the Green Party, the junior partner in the government, for a general election. Irish Prime Minister Cowan agreed to a January election date on the proviso that the Irish parliament approve the coalition government’s austerity budget on 7 December.
Sentiment on the euro is not being helped by investors, who far from being reassured about the bailout for the stricken Irish economy are already bracing themselves for the next round in a country by country crisis over euro zone debt following the Greek bailout in May and the one agreed in principle for Ireland this weekend. Portugal is being cited as the next country that could come under pressure.
The clear implication is that investors do not believe the euro zone’s debt crisis is over.
Like the pound, the dollar initially tumbled against the euro but duly made gains across the board as investors sought the ‘safe haven’ status of the dollar as the markets reacted badly to the lack of detail in the Irish rescue package, the threat of ‘contagion’ of the Greek and Irish problems to Portugal and Spain and the latest skirmish between the two Korea’s.
Away from the euro zone, the pound made gains against the Canadian dollar on falling oil prices. News of a slow down in China to combat inflationary pressures did not help the ‘loonie’ as the Canadian currency is nicknamed as prospects for energy prices were dampened on the Chinese news. This may prevent the Reserve Bank of Canada from increasing interest rates in Canada in the short term leaving the ‘loonie’ vulnerable to reverses if energy prices falter due to flickering demand.
News of a likely slow down in China also sparked fears of the Australian economies prospects and the Australian dollar duly fell against the pound.
Meanwhile the pound gained nearly 1% against the New Zealand dollar which fell heavily following news that Standard & Poor’s downgraded New Zealand’s sovereign credit outlook.
