6th April 2011
Good morning. Sterling soared to a 2 week high against the US Dollar yesterday, and extended gains against the euro after a surprisingly strong rise in Britain’s services sector rekindled expectations of a near-term rate hike. The gains against the Euro may be short lived however as we’ll see in a moment. First the usual snapshot of rates as at 08:30am:
- GBP/EUR 1.1434
- GBP/USD 1.6341
- GBP/AUD 1.5745
- GBP/NZD 2.1113
- GBP/CAD 1.5697
- GBP/CHF 1.5011
- GBP/ZAR 10.909
- GBP/JPY 139.25
- GBP/HUF 300.85
- GBP/NOK 8.8989
- EUR/USD 1.4287
Pound gains on PMI data
The UK PMI index yesterday showed the service sector growing at its fastest pace in over a year and pointed to solid first-quarter GDP growth, making a Bank of England rate rise in May more likely. The figures were better than expected and Sterling rose as a result.
Since services constitutes the bulk of the economy, analysts said the numbers brighten the chances of a robust first-quarter performance and could strengthen chances of a rate hike in May. Financial markets are fully pricing a 25 basis point rate hike by the Bank of England (BoE) in July.
So will Sterling keep gaining against the Euro?
Markets expect the BoE to keep rates close to zero when it meets this week. Three of the nine members of the BoE’s Monetary Policy Committee supported a rate rise in March, but the others were worried that the fourth-quarter’s shock GDP contraction could mark the start of an extended period of sub-par growth.
In contrast, most analysts expect the EU to raise their interest rate, which will strengthen the single currency. Higher interest rates give a higher return for investors, and the increased demand for the currency is what drives the strength.
This rise will already be partially priced into the market, but whatever the EU do tomorrow we expect significant moves for GBP/EUR.
If you need to buy Euros you may wish to consider locking in a rate in advance of tomorrows decision, as an interest rate hike could make the recent gains in GBP/EUR very short lived indeed. To open an account with us for free click here to send us an enquiry.
We have a UK GDP estimate this morning so we expect some GBP volatility. There are also GDP figures released from the Eurozone this morning, so expect GBP/EUR to change should the figures be different to forecast.
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.