Ireland the bailout and the currency market

Ireland was firmly back under the spotlight yesterday after it emerged from EU sources that discussions of a bailout for the country were well underway.

Ireland even now is denying such claims. As one of the PIGS of Europe, with a budget deficit expected to balloon, Ireland like others have proven to be a burden on the Eurozone and this is surely one of the main reasons why the single currency has suffered in recent weeks. The pound in particular has seen some tremendous gains against the Euro and pushed to a near seven week high yesterday. The Euro is suffering not just because of Ireland, but for fear of contagion, with Portugal likely to be the next problem. Over the coming days the Euro is likely to be very volatile as news comes out of a package which is rumoured to be somewhere between £51billion and £77billion.


The real question here is how much of an impact such emergency funding will have on the currency. If they can contain the problem then the Euro could reverse its losses and start to climb higher again. Expect volatility for the Euro to continue today and for the rest of the week, as details emerge of different scenarios and whether the other PIGS feel the pressure.


Bank of England Comments


Some early clues were given yesterday as to how the Monetary Policy Committee (MPC) voted at the last meeting. Martin Weale who sits on the MPC suggested that the majority of members were still of the opinion that policy should remain unchanged with no need to raise rates or use further Quantitative Easing (QE). By the sound if it, if inflation is running high this morning, then this is one member we won’t see running to start the presses; if anything he could become more of a hawk in the coming months. His comments were likely to have aided sterling yesterday as the prospect of more QE has been slowly coming off the boil.

Australian Minutes


This morning saw the release of the Reserve Bank of Australia minutes which suggests the decision was “finely balanced” which has probably alleviated concerns of any further rises in the near term and the dollar has weakened off a little. To refresh, Australia surprised the markets and raised their interest rates earlier this month to 4.75%.