What caused Sterling to fall then gain against the Euro?

21st July 2010
Good morning. Yesterday Sterling fell after weaker than expected public finance data. After dropping around 1 cent against the Euro in the morning, the pound recovered all it’s losses in the afternoon. Today we’ll look at what’s causing the movements, and what’s in store for the pound when the BoE release their minutes this morning. First, the usual snapshot of rates @ 08:30am:

  • GBP/EUR 1.1857
  • GBP/USD 1.5305
  • GBP/AUD 1.7280
  • GBP/NZD 2.1265
  • GBP/CAD 1.5850
  • GBP/CHF 1.6083
  • GBP/ZAR 11.542
  • GBP/JPY 133.36
  • GBP/HUF 339.08
  • EUR/USD 1.2896

Sterling falls due to Public spending data

Yesterday figures showed that net borrowing was worse than expected. The ONS also said total government debt was now equivalent to 63.9% of the UK’s annual economic output, the highest since that measure began in March 1993. The figures pushed Sterling lower against most currencies, dropping to the low €1.17’s against the Euro. Later in the day however, Euro weakness caused rates to bounce back.

Euro weakness pushes GBP/EUR rates back up

Storm clouds were last night gathering again over the European economy after two of its weakest nations suffered severe setbacks. Ireland sustained a painful downgrade to its battered credit rating, while talks over an emergency bailout for Hungary unexpectedly collapsed.

The moves led to the cost of borrowing on European money markets surging to near one-year highs amid fears that a Greek-style debt crisis could flare again. In the currency markets, the developments caused the Euro to weaken, which made it cheaper to purchase and pushed rates higher. At the close yesterday Sterling Euro rates had recovered all their losses.

Those that could move quickly were able to take advantage of yesterdays move down, and convert Euros at the best rates for several months. In order to take advantage of our commercial rates, contact us today to find out how the process works.

Bank of England data this morning

At 09:30am the minutes to the recent interest rate decision are released. These will show how the 9 member committee voted when rates were left on hold. Last month member Andrew Sentence surprised many by voting for a rate increase and we will learn if any other members have followed his lead.

If more of the committee have backed the idea it could suggest the UK is finally ready to move up from the base rate of 0.5% which has been held since March 2009. A move like this could give Sterling back the edge over the Euro and start to make some gains come the next Interest rate decision in August.

So, if 2 or more members voted for an increase, we will probably see the pound gain slightly against the Euro. The next main UK data is the GDP release on Friday.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what’s happening in the currency markets.

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