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Exchange rates update: Euro to Pound 1 month low, Dollar to Pound 3 month low
Published: 19 Mar at 12 PM Tags: Pound Sterling, Euro Exchange Rate, Dollar Exchange Rate, Currency Exchange, Forex, Euro Crisis, UK, Economy, Spain,
The euro fell to a one month low against the pound and a three month low against the dollar as markets reacted negatively to the news over the weekend that the European Union, in exchange for an agreeing a bail-out of the Cypriot economy was insisting that the Cypriot government impose a one-time tax levy on all bank accounts in the country.
The plans by the European Union and International Monetary Fund raised fears that the euro zone’s third and fourth largest economies, Italy and Spain may follow suit.
European Central Bank council member Jörg Asmussen tried his best to sooth concern about the possibility of ‘contagion’, saying Cyprus' situation was unique fell on ‘deaf ears’ as the euro tumbled alongside worldwide stock markets.
The Cypriot Parliament was due to vote on the tax levy proposal today but this has been postponed until Thursday and Cypriot banks have been ordered to stay closed to prevent a run on bank deposits.
The original proposal was for a 6.7% tax on bank deposits on amounts below €100,000 and a 9.9% tax on larger amounts. Depositors will be compensated by equity in the banks. The inevitable backlash has seen urgent attempts to renegotiate the tax between the Cypriot government and the European authorities.
The bank levy forms part of the agreement for a €10 billion rescue of the Cypriot government debt agreed with international creditors on Saturday morning, a decision intended to save the country from default and recapitalise its beleaguered banking sector.
The bailout had initially been valued at €17.5 billion with €10 billion allocated for bank recapitalisations and the €7.5 billion balance allocated to prevent the country's default. However, €17.5 billion represents nearly the entire annual output of Cyprus' economy and was considered impossible to pay back on top of public debt that is already above 90% of gross domestic product (GDP).
Eurogroup President Jeroen Dijsselbloem announced that Cyprus has also agreed to trim its deficit, shrink its banking sector, raise taxes, and privatise state assets.
Whilst the Cypriot economy represents only 0.2% of the entire euro zone economy (GDP), the bailout was still considered crucial because of a possible fallout in the broader region that could upset financial markets and hurt investor confidence. However, the unprecedented tax levy, imposing losses on depositors has caught most people by surprise with some analysts predicting that it will set a precedent for future bailout packages.
The news sent shockwaves through the world’s stock markets which all fell heavily as risk was taken off the table.
On top of a congested week for economic data, the UK budget and monthly policy announcement from the US Federal Reserve should all contribute to the continuation of the volatile trading conditions seen yesterday.
The plans by the European Union and International Monetary Fund raised fears that the euro zone’s third and fourth largest economies, Italy and Spain may follow suit.
European Central Bank council member Jörg Asmussen tried his best to sooth concern about the possibility of ‘contagion’, saying Cyprus' situation was unique fell on ‘deaf ears’ as the euro tumbled alongside worldwide stock markets.
The Cypriot Parliament was due to vote on the tax levy proposal today but this has been postponed until Thursday and Cypriot banks have been ordered to stay closed to prevent a run on bank deposits.
The original proposal was for a 6.7% tax on bank deposits on amounts below €100,000 and a 9.9% tax on larger amounts. Depositors will be compensated by equity in the banks. The inevitable backlash has seen urgent attempts to renegotiate the tax between the Cypriot government and the European authorities.
The bank levy forms part of the agreement for a €10 billion rescue of the Cypriot government debt agreed with international creditors on Saturday morning, a decision intended to save the country from default and recapitalise its beleaguered banking sector.
The bailout had initially been valued at €17.5 billion with €10 billion allocated for bank recapitalisations and the €7.5 billion balance allocated to prevent the country's default. However, €17.5 billion represents nearly the entire annual output of Cyprus' economy and was considered impossible to pay back on top of public debt that is already above 90% of gross domestic product (GDP).
Eurogroup President Jeroen Dijsselbloem announced that Cyprus has also agreed to trim its deficit, shrink its banking sector, raise taxes, and privatise state assets.
Whilst the Cypriot economy represents only 0.2% of the entire euro zone economy (GDP), the bailout was still considered crucial because of a possible fallout in the broader region that could upset financial markets and hurt investor confidence. However, the unprecedented tax levy, imposing losses on depositors has caught most people by surprise with some analysts predicting that it will set a precedent for future bailout packages.
The news sent shockwaves through the world’s stock markets which all fell heavily as risk was taken off the table.
On top of a congested week for economic data, the UK budget and monthly policy announcement from the US Federal Reserve should all contribute to the continuation of the volatile trading conditions seen yesterday.
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Source: moneytransfer.co.uk