Rather than meditating on the past weeks theatrics on the forex stage, it seems far more worthwhile to focus on the Euro-Zone in this week’s chapter of our currency exchange diary. An unexpected and sizeable aid package arrived on Greece’s front door and, although it hasn’t yet been signed for, the European currency is already benefiting from investors’ relief.

So here are the gritty details:

Over the weekend, bespectacled Finnish Eurogroup Junker and European Commissioner Olli Rehn presented the media with details of the financial backstop facility for Greece.

As anticipated, the rescue plan will come in the form of bilateral loans from the Euro area member states, in what promises to be an effective economical makeover for the Greek nation. Amounts will be tailored to fit Greece's funding needs over the next three years and The European Commission will act as a conduit and deal with the bilateral negotiations, while the European Central Bank will be the paying agent supplying the dough.

A larger-than-expected 30 billion euros will be the maximum amount of pocket money provided by the Euro area for the first year and each country will contribute according to the ECB capital key. Amounts for later years are yet to be evaluated, but it is reported that there is no upper limit to the commitment. Additional financing from the International Monetary Fund is expected to be formalised today, although Rehn confirmed that analysts’ assumption of a ‘two thirds’ contribution from the Euro area against ‘one third’ for the IMF is a good guess.

If and when Greece requests a loan, the European Commission and ECB will cast their beady eyes over the situation, make an assessment and submit it to the hopefully unanimous approval of the Euro area countries. It was specified in the press conference that cash would be promptly laid out, which conflicts with the fact that other countries need such decisions to be ratified by their parliament. This raises a few questions over the idea of ‘imminent disbursements’.

Developments in the next few days and the ability of Greece to access the market will determine if help is needed sooner than expected.

The next date to watch following this gripping omnibus is the update of the Stability and Growth Plan next month. As there have been no additions to conditionality we can only assume that EU leaders feel Greece have made positive steps towards dealing with their problems.

Of course, this has been a blinding green light for Euro investors in the currency exchange world, easing concerns about the inability of the EU to solve Greece's financing needs. However, it sets a hazardous precedent as the Euro area can ill-afford another similar situation. Pressure on other periphery countries to strengthen financially and for the ECB to maintain a sturdy policy will have increased and the intricacy of this deal and the IMF's participation will keep investors in heavy debate. While it’s clear that Europe want to help Greece, it’s possible that the forex market will only respond solidly when aid is actually disbursed to the country.

In the meantime, keep an eye on any news relating to the situation and for the best currency exchange rates visit www.currencysolutions.com

 Have a great week

Nigel Hodges www.currencysolutions.co.uk

The Pound has been pulling all sorts of party tricks! Having done a great limbo impression, Sterling has bent over backwards to reach new lows this week, not once but three times against the Euro.

While talks of parity are a little premature, the downward run on Sterling shows no sign of abating with the Pound sitting at 1.11 this morning. To add insult to injury, markets deemed Britain had a greater credit risk than McDonald's to the average investor. What is the world coming to?!

As the global economic downturn gathers momentum, new lows and new challenges have emerged this week. The Pound has hit a record low against the Euro, plunging over three consecutive days to trade at 1.11 this morning. Nations around the world are continually revising growth forecasts with even India and China beginning to feel the impact of the downturn.

In the UK this week the Pound has been absolutely battered by the weight of negative economic data. The National Institute of Social and Economic Research reported that the UK economy contracted 1% in the 3 months to November and figures released showed declines of 2% and 1.8% respectively in the manufacturing and industrial production sectors.

The CBI Industrial Trends survey confirmed the bleak state of the economy and analysts are predicting this recession is shaping up to be comparable with the big 3 since the end of WW2.

All the positive effects of low value Sterling for exporters and inflation are being negated by market conditions as export markets shrivel up and the OECD has described the business climate as 'severe'. In the absence of major data from the US and Eurozone to divert market attention, the Pound was shunned by investors and sunk to record lows against the Euro while remaining in the vicinity of 1.47-1.5 versus the Dollar.

In the US overnight, Senate failure to reach a consensus on the $14 billion bail out for the US car industry sent Wall Street and equity markets around the world plummeting in a return to risk aversion.

That aside, the week has been relatively uneventful for the US Dollar with RBS describing the tone of markets as one of 'consolidation'. Last 'non-farm Friday' showed US unemployment had risen to its highest rate in 34 years and today markets will be interested in retail and consumer price indices.

The Federal Reserve Interest rate decision is also due next week so watch for Dollar volatility surrounding the announcement. While the Dollar has been strong on the back of risk aversion recently, as a degree of confidence returns - or as markets become desensitized to bad news, take your pick, we may see some weakening in Dollar rates.

The Euro has perhaps been the big winner of the week, gaining 5 cents on the Dollar to break through the 1.3 level. The Euro has also reached record highs against the Pound with talk of parity being achieved as further base rate cuts are expected in the UK. We are seeing much smaller ranges from the European currencies with Zloty only moving between 0.226 and 0.221 against the Pound and the Czech Koruna staying in the vicinity of 0.033.

The Euro begins its second decade on January 1st and many economists are watching with interest the true 'litmus test' of the Euro as deflation appears in the Eurozone. The ECB has less scope than other Central Banks in cutting interest rates and we could see the Euro weaken significantly when the extent of economic contraction in the Eurozone emerges.

Industrial production figures out this morning show Eurozone production has fallen 1.2% on the month for October and 5.3% on the year. The ECB has also revised GDP forecasts down to 0-1% for 2009, from 0.6-1.8%.

At present we are seeing Governments and Central Banks go into overdrive attempting to mitigate the effects of recession for their economies. The impact of figures that speak for themselves has sent the Pound plunging this week, although some analysts are predicting Sterling is approaching the trough of the economic cycle. Low market confidence and falling inflation rates support the case for further rate cuts and this too is a factor in the low value of Sterling.

While underlying trends remain negative, we are now seeing far less volatility than we have witnessed in recent weeks. The time is right for those looking to transfer Euros, or any other currency for that matter, back into Sterling. Speak to your dealer about the best option for your currency requirements.

Have a good weekend!

Nigek Hodges of Currency Solutions