The euro has strengthened in recent months, as the eurozone’s economy improves and markets predict the European Central Bank could start to cut back the money-printing program it has been running to repair the ravages of the eurozone crisis and credit crunch of the late 2000s.
The dollar was also undermined by August 25 annual meeting of central bankers at the Jackson Hole resort in Wyoming at which Federal Reserve chief Janet Yellen’s speech gave no hint that the central back was planning any policy change that would support the dollar.
At the same event, European Central Bank President Mario Draghi did nothing to talk down the euro.
Euro strength has left the pound at its weakest for almost a year. It buys 1.0759 euros in the wholesale currency markets, making a euro worth a much as 92.95p.
Sterling buys $1.2955 currently.
Tourist rates tend to be below those of the markets, sometimes by quite a bit.
European stocks have traded lower on September 18 after the Federal Reserve’s decision not to change interest rates, as concerns about the health of the global economy were renewed.
The Federal Reserve made it clear that worries about the global economy had influenced its decision to keep rates on hold.
“The outlook abroad appears to have become less certain,” said Fed chair Janet Yellen, at a news conference.
At lunchtime, the UK’s FTSE 100 was down 66.66 points, or 1%, at 6,120.33.
Bigger falls were seen elsewhere in Europe, with Germany’s Dax index down 2.5% and France’s Cac 40 dropping 2.6%.
Markets could now face a prolonged period of uncertainty as to the direction of US interest rates.
In London, banking stocks saw some of the biggest falls, with Royal Bank of Scotland down 2.6% and Barclays dropping 2.1%.
On the currency markets, the pound rose 0.35% against the dollar to $1.5646, and was up 0.4% against the euro at €1.3684.
Following the Fed’s decision the dollar fell sharply against the yen, dropping below the 120 yen mark. The move hit shares in Japan – particularly among exporting companies – and the country’s Nikkei index closed down 2%.
The euro hit an 11-year low against the dollar as investors digest what Syriza’s election victory in Greece means for the eurozone’s future.
The currency fell as low as $1.1088, the lowest level against the dollar in more than 11 years, but in mid-morning trading was 0.4% higher at $1.125.
Europe’s main share markets also rose – after initial falls – on hopes that a compromise over Greece’s bailout terms might be found.
Syriza wants to renegotiate the €240 billion bailout and slow the austerity cuts.
The left-wing party’s leader Alexis Tsipras said he wanted negotiation, not confrontation, with Greece’s international lenders.
“The new Greek government will be ready to co-operate and negotiate for the first time with our peers a just, mutually beneficial and viable solution,” Alexis Tsipras said.
The troika of lenders that bailed out Greece – the European Union, European Central Bank, and International Monetary Fund – imposed big budgetary cuts and restructuring in return for the money.
Alexis Tsipras said: “The troika for Greece is the thing of the past.”
The euro had already been under pressure following last week’s announcement of a new stimulus program by the European Central Bank.
Greece’s current bailout program ends in February, and economists say a short term deal will be negotiated, but difficult talks lie ahead. Germany has indicated that it is not prepared to renegotiate the bailout terms, raising the prospect that Greece could end up leaving the eurozone.
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