Good Morning. The Euro rose against the US Dollar yesterday as expectations that European finance ministers would not say anything new on solving Greece’s debt woes prompted short-term players to trim their short positions. Investors remained cautious about buying the single currency on uncertainty that debt problems in Greece will be resolved quickly.
Yesterday Sterling made little movement, due to the market holiday in the USA. Rates @ 08:30am are as follows:
- GBP/EUR 1.1492
- GBP/USD 1.5719
- GBP/AUD 1.7545
- GBP/NZD 2.2309
- GBP/CAD 1.6429
- GBP/CHF 1.6852
- GBP/ZAR 12.051
- GBP/JPY 141.24
- GBP/NOK 9.2528
- EUR/USD 1.3671
Eurozone predicts fragile growth
The economy of the eurozone will grow by about 1% this year, according to the head of the 16-nation bloc. “Growth is on the path of consolidation but growth in 2010 will be fragile, moderate,” Jean-Claude Juncker said.
The eurozone was hit hard by the economic downturn last year, contracting by 4%, its biggest drop since the euro launched in 1999. Ministers are also deciding how to help Greece, whose poor public finances have put the euro under pressure.
Leaders of the European Union last week pledged to support the country, but stopped short of detailing any exact proposals. Once we hear how they plan to help Greece, this may weaken the Euro. However, weakness may well already be priced into the market, so we’ll have to wait and see what effect further developments have on GBP/EUR rates. Ministers and bank officials from the eurozone continue to meet in Brussels on Tuesday.
UK Inflation Figures today
Official figures due out later are expected to show that the UK inflation rate rose above 3% in January. Bank of England Governor Mervyn King has already warned this is likely, and if so, he will have to write a letter of explanation to the chancellor.
The Bank of England itself has also warned that inflation could rise to 3.5% this year, before falling back to below the 2% target. As the Bank continues to predict that inflation will fall back again of its own accord as 2010 continues, most economists expect it to hold off from raising interest rates to try and bring it back down sooner.
Because interest rates will stay low, it’s unlikely that the pound will gain. High inflation usually means higher interest rates and can strengthen a currency, however will the amount of QE the bank have done, coupled with the fact they are predicting inflation to come back to 2%, we probably wont see any rate hikes.
UK interest rates have been at the low level of 0.5% for 11 consecutive months, as the Bank seeks to aid the economic recovery.
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