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Pound to euro rate rises on ECB loan scheme

The pound has made consistent gains against the euro over the past week on the back of pessimistic sentiment regarding the euro zone, rather than optimism in Britain (alas).


In particular, the Long Term Refinancing Operation by the European Central Bank has stoked concerns European banks might be close to collapse, while unemployment on the continent continues to climb.

The European Central Bank initiated its second loan scheme this week, called the Long Term Refinancing Operation (LTRO.) The scheme is intended to provide European banks unlimited loans for three years at just 1.00%, and since round one in December has been widely credited with preventing a credit crunch in Europe.

In the event this second round proved more popular than the first, with 800 banks borrowing €529.5 billion. On the one hand this is testament to the willingness of the ECB to prevent a crisis in Europe, by loaning such extravagant sums. But on the other, it has prompted concerns that if not for the ECB, a large proportion of European banks would be unable to find funding, and would therefore face insolvency. This has dampened euro sentiment, in spite of the apparent success of the scheme.

EU unemployment rises

Unemployment in the Eurozone continues to climb meanwhile. It reached 10.6% last month, compared to expectations it would remain at 10.3%. This is troubling because it indicates that businesses in the EU continue to shed workers, and that therefore conditions are set to decline. Most economists expect Europe to spend the duration of 2012 in recession.

I will of course return with my next pound to euro update next week.

In the meantime, if you have an questions about the exchange rate, or would like to know anything about sending money abroad, feel free to leave a response below!

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Peter Lavelle is an economist at foreign exchange broker Pure FX. For a free no-obligation quote regarding changing currencies, get in touch at foreign exchange specialist Pure FX.

Copyright: Peter Lavelle, Pure FX
Category: Expats
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