Crucial breakthroughs following EU summit

Publication date: 29 June 2012
Author: Mark Bolsom, Travelex

Safe haven currencies are in trouble this morning after the EU’s latest summit unexpectedly brought about some crucial breakthroughs. The US dollar has nose-dived by almost 1.5% against the euro whilst Cable is up by a similar margin following news that Germany, similar to last night’s football result, will stand aside to let Italy and Spain shape Europe’s crisis-fighting strategy.

European authorities agreed to give Spanish banks direct access to the region’s bailout funds which was previously ruled out by Germany despite watching Madrid suffer from speculative attacks in bond markets. However, Berlin has demanded something in return. Although the euro looks to have petrol in its tank again, the single currency could soon be running on empty if analysts find loopholes in Europe’s latest strategy as they have done many times in the past.

For now, an extremely optimistic mood in markets has given the pound a mixed outlook, with sterling dropping against its more risky rivals given its secondary safe haven role. However, the pound’s rally against the safer dollar is exiting British importers but a second day of talks in Brussels could scupper last night’s relief. Economists will now dissect the latest master plan and any evidence of discontent could see currency markets see-saw back in the direction of risk aversion. The euro could also stumble if today’s eurozone inflation data cements expectations of an interest rate cut at next week’s European Central Bank meeting