Pound vs Euro rates gain on EU debt

Wednesday 17th August 2011

Good morning. Sterling rose yesterday, after inflation figures reduced the risk of more Quantitative Easing. The Euro also weakened, after poor German GDP data, and a failure for the German and French leaders to reach an agreement over EU debt. Combined, this pushed GBP/EUR rates up. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1428

• GBP/USD 1.6438

• GBP/AUD 1.5684

• GBP/NZD 1.9681

• GBP/CAD 1.6157

• GBP/ZAR 11.718

• GBP/JPY 125.90

• GBP/DKK 8.5128

• GBP/NOK 8.9405

• EUR/USD 1.4381

Sterling rises but downside risks remain

Higher inflation yesterday for the UK reduced the risk of Quantitative Easing in the UK, pushing Sterling slightly higher against other currencies. However, with the UK economy fragile and UK interest rates still expected to stay at record low levels for at least a year, Sterling’s gains were limited. Analysts expect the Pound to stay within its recent ranges against the euro and dollar.

Today is important, as we see the minutes to the BoE meeting earlier this month. Analysts said the higher inflation data could mean the minutes may not be as dovish as some traders had been positioning for in the wake of last week’s downbeat BoE quarterly inflation report. Given that interest rates are going to remain low for some time, this will limit gains for Sterling.

Euro weakens on GDP and EU debt

EU and German GDP yesterday was lower than expected. The German economy only grew by 0.1%, France by 0.0%, and the EU as a whole only 0.2%. The slow growth figures weakened the Euro, making it cheaper to buy and pushing GBP/EUR rates up.

There was also a meeting yesterday between German and French leaders, however they failed to reach an agreement and this weakened the Euro further.

Today’s Data

Various Unemployment measures are released for the UK today, and we also have the minutes to the latest Bank of England (BoE) decision to hold interest rates. Any mention of Quantitative Easing could weaken Sterling. From the Eurozone, there are Consumer Price Index figures, which if high could strengthen the Euro. From the US there are also inflation numbers released in the afternoon, along with mortgage approvals.

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