Many experts predict that the ongoing sovereign debt crisis in the eurozone will provide some support the forex rate of the pound against the euro. As the markets continue to be concerned about the financial situations of some eurozone member states, the previous gains of the single currency may be jeopardised. The prospects for higher interest rate have their limitations and cannot provide indefinite support for the euro at face of worsening economic and liquidity issues in the region.

After the European leaders have resolved the terms and conditions of the emergency bailout loan for Portugal, any hope of ending the eurozone sovereign debt problems seem to have been thwarted by the latest uncertainties the Greece. This previously bailed-out peripheral eurozone state is again undergoing financial difficulties as the spreads of its government-issued bonds widened. The markets are again worried that the country may again need to restructure its debt.

The yield of Greece’s two-year treasury bills is rising to worrying levels, indicative that investors are dumping the government-issued bonds. More and more bond investors are losing confidence on Greek debt that they are willing to sell their Greek bond holdings at lower prices, thereby increasing the yield spread. The yield recently rose to a record high of 18.4%. This could force the country to renegotiate its borrowing terms and the country may default on its financial obligations.

As a result of the renewed market fears about Greece, the forex position of the single currency is now again under threat. The contagion may spread much faster and more ferocious than previously feared.

Both Spain and Portugal have also undergone similar dilemma yesterday. Those who are interested to make money through the forex market may not anymore have the same level confidence on the euro compared to a few days ago when the European Central Bank announced a rate hike. The resurgence of the eurozone worries provided some support for the pound-euro exchange rate. After six months of weakness, the British currency rallied for the first time against the euro.

Meanwhile, the Asian market situation is also experiencing some setbacks as the economic momentum of China is somewhat encountering resistance. Various economic indicators were recently published by China but the annualised consumer price index (CPI) figures caught the attention of investors and analysts. The CPI inflation data indicated a 5.4% increase on a year-on-year basis for the month of March. This was a bit higher than the 5.2% predicted figure but significantly overshoot the February CPI of 4.9%. The soaring prices of food have provided strong influence for the CPI increase. According to the official report, food prices rose to almost 12% on an annualised basis.

In response to the soaring inflation, the Chinese monetary policymakers are expected to further raise the base interest rates and provide boosts for the Yuan. If this trend continues, some experts believe that it could pose serious threat to the recovery of the global economy. The economic growth of China is still exceeding expectations, particularly in the retail sector, but high inflation is pressuring the Chinese central bank to resort to tighter policies.

The forex value of the British pound strengthens against the US dollar after the Federal Reserve resolved to maintain the status quo of loose monetary policies. This decision resulted in lower expectations about the greenback. Maintaining the monetary policy at status quo would mean that the base interest rates will not be raised and the quantitative easing program will be continued until its completion this June. The government will push through purchasing market assets in an attempt to provide boost for the sagging market.

According to the latest minutes of the Federal Reserve’s policy meeting, all of the ten members of the monetary policy committee have unanimously approved the decision to maintain the current monetary policies. Nonetheless, there was no unanimity in terms of the details about the Federal Reserve’s monetary policy for the remaining months of the current year. Opinions were divided among the members. Some members recommended a much tighter monetary policy for the remainder of the year. This prompted some foreign exchange traders to speculate against the US dollar.

On the other hand, the members of the Federal Reserve’s monetary committee had achieved consensus on some key economic issues. They all agreed that the rate of US inflation is still within manageable range. The committee members also concurred that the economic recovery of the United States is on the right track. Many of those who are interested to make money through the forex market have interpreted the announcement of the Federal Reserve as a signal to sell their dollar-denominated holdings. Some analysts think that it is now unlikely that the Fed will soon change its dovish monetary policies considering the strengthening but still fragile economic situation of the Unite States.

As a result, some forex traders bet against the dollar but the sell off volume was only moderate. Nonetheless, it was enough to weaken the dollar compared to other major currencies, which included the British sterling.

Meanwhile the soaring prices of crude oil continue to influence the price movements in the currency markets. The US dollar is particularly affected because of its status as the main invoicing currency for the international trade of oil. The inverse correlation between oil prices and US dollar forex value meant that the continually increasing oil prices are exerting pressure against the dollar. Other currencies are being favoured by this situation. As long as market fears over the supply of oil linger, the global prices of fossil fuel will remain high.