Pound/Euro falls from 2 month high

Tuesday 19th July 2011
Good morning. Yesterday Sterling hit a near 2 month high vs the Euro nearly getting to €1.15, however the gains were short lived, as the Pound fell through the day on fears the UK economy is slow, debt is high, and the BoE minutes this week could also be negative. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1384
• GBP/USD 1.6114
• GBP/AUD 1.5104
• GBP/NZD 1.8992
• GBP/CAD 1.5395
• GBP/ZAR 11.193
• GBP/JPY 127.28
• GBP/DKK 8.4858
• GBP/NOK 8.9483
• EUR/USD 1.4155

Sterling vs Euro falls on UK economy fears

The EU sovereign debt crisis in the past week had significantly weakened the Euro, helping to push GBP/EUR rates to a near 2 month high. The Pound fell however yesterday, as figures paint a less than rosy picture of the UK economy, meaning interest rates will stay low for some time to come.

It’s this weakness in Sterling that has caused rates to fall back away, and the gains have not been anything to do with strength in the Pound, rather weakness in the Euro.

“There are not so many fundamental reasons to buy sterling.. it has a low yield, low volatility that enables investors to hold onto short positions and the BoE won’t be raising rates any time soon,” said Peter Kinsella, currency strategist at Commerzbank.

“So investors are buying it basically as a reflection that it’s not the euro.”

The euro struggled in the aftermath of results from European bank stress tests last week which investors said were too lenient as they did not test the impact of a Greek sovereign default. However, analysts said sterling’s gains against the euro may be limited due to concerns about the weakness of the UK economy and its high levels of debt.

“Sterling is a very cheap currency, but it can’t bounce independently until the UK has weathered the economic and fiscal storms,” said Kit Juckes, currency strategist at Societe Generale

Today’s Data

Australia releases its minutes to the recent interest rate decision, the EU releases measures on economic sentiment and construction output, and the USA has some number showing Housing Starts and building permits. There is also an interest rate decision from Australia. Markets may also be positioning ahead of the BoE minutes tomorrow, which if dovish could cause a further drop in rates.

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