Will Pound fall lower vs Euro? Forecast July 2011

Tuesday 5th July 2011
Good morning. The markets remained flat yesterday with markets closed in the USA for Independence day. Sterling remained near it’s 15 month low vs the Euro still due to interest rate differentials. At 08:30am this morning rates are as follows:

GBP/EUR 1.1056
GBP/USD 1.6010
GBP/AUD 1.4965
GBP/NZD 1.9311
GBP/CAD 1.5395
GBP/ZAR 10.758
GBP/JPY 129.81
GBP/DKK 8.2465
GBP/NOK 8.5717
• EUR/USD 1.4476

Sterling remains low vs Euro on interest rate differentials

The pound hovered near the 15 month low hit against the euro last week as investors awaited Thursday’s central bank meetings in the UK and the euro zone. A further monetary tightening by the European Central Bank is expected while UK interest rates are seen chained near record lows. Higher interest rates in the EU will mean a higher return for investors, and therefore the single currency will strengthen due to the demand, pushing GBP/EUR lower.

Sterling has suffered against a widely recovering euro after the passage of Greek austerity measures last week helped the debt-laden country to avoid a default for now, resulting in a hefty bounce in the single currency. At the same time, t he euro’s recovery versus the dollar has dragged the pound higher versus the U.S. currency.

What do the analysts say?

“When you have the interest rate differentials between the euro and sterling becoming quite wide, and widening even further, that’s going to put pressure on sterling to go lower,” said Peter Kinsella, currency strategist at Commerzbank. So it seems likely Sterling could drop further against the Euro.

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