EUR/GBP: Euro Zone Unlocks 500 Billion Euro-Rescue Fund

The European leaders finally unlocked the 500 Billion Euro-bailout fund, the European Stability Mechanism, amid increasing concerns over Greece, and uncertainties over Spain’s bailout request. With the launch of the ESM, Fitch Ratings Agency gave a triple-A rating to the Euro Zone’s permanent rescue fund. As a result, the Euro advanced versus the Great British pound in the previous European trades, and is likely to extend gains into today’s trading session.

The ESM was supposed to be launched on July 1, but was put on hold as Germany, the biggest contributor to the rescue fund, questioned its legality. It was only on September 12 that the German Constitutional Court ratified the ESM, removing a roadblock to the Euro Zone’s rescue fund. During the Eurogroup meeting, the leaders also commended Greece’s determination to cut the budget, and steer the economy towards the path of recovery, increasing the chances that financial assistance would continue to flow into Greece. After the meeting in Luxembourg, Eurogroup Head Jean-Claude Juncker said to reporters that they were happy to learn of the substantial progress made over the last week by the Greek government. However, Juncker and International Monetary Fund Director Christine Lagarde emphasized that it was still necessary for the indebted country to fully implement the agreed-upon austerity measures.

The Eurogroup officials also commended Portugal’s hard work to make structural economic reforms. “The Eurogroup notes with satisfaction that the government’s active preparation of a return to the financial markets in 2013 has recently been met with success,” said in its statement. Thus, it approved the next tranche worth 800 Million Euros. The launch of the ESM sends a message to investors that the Euro area is more ready to deal with the debt crisis. With the positive developments in the Euro region likely to trigger risk-on sentiment, the Sterling is seen to weaken. As such, a long position for the EUR/GBP pair is recommended in today’s European exchanges.

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