Pound up against Euro, but gains may be short lived

Tuesday 18t October 2011
Good morning. Sterling fell against the US Dollar yesterday, tracking losses in the Euro. The weaker Euro however helped push GBP/EUR rates up by nearly 1%, after comments from German officials tempered optimism that a European Union summit this week will produce a comprehensive plan to tackle the euro zone debt crisis. At 08:30am this morning rates are as follows:

GBP/EUR 1.1495
GBP/USD 1.5750
GBP/AUD 1.5546
GBP/NZD 1.9978
GBP/CHF 1.4178
GBP/CAD 1.6135
GBP/ZAR 12.673
GBP/JPY 120.91
GBP/DKK 8.5568
GBP/NOK 8.8865
• EUR/USD 1.3700

Euro weakens pushing GBP/EUR rates higher

The German Finance Minister yesterday dampened demand for the euro when he said Sunday’s summit of EU leaders will not present a definitive solution for the region’s significant debt problems. This weakened the Euro, making the single currency cheaper to purchase.

His comments helped boost GBP/EUR rates up from a 5 week low. However the Pound dropped against other currencies such as the US Dollar. The comments spooked investors and we saw a flight back to the safe haven US Dollar, which usually strengthens when there is global economic uncertainty.

Sterling at risk of falls due to poor data

Despite the gains seen yesterday, it’s worth noting this is nothing to do with any strength in the Pound, rather it’s Euro weakness pushing up rates. Many analysts said there was little reason to buy sterling given weaknesses in the UK economy and loose monetary policy.

The ITEM Club yesterday downgraded its growth forecasts for the UK, which didn’t do Sterling any favours. We now await data on UK inflation and retail sales which are expected to show the economy’s recovery remains frail, so this could mean the current spike in GBP/EUR rates are short lived.

Some analysts said this week’s data may have limited impact on sterling given that the UK central bank has already moved to bolster the economy with more quantitative easing, which involves flooding the market with pounds and thereby decreasing demand for the currency.

Today’s Data

Retail Price Index, Consumer Price Index, and CBI trend survey are all released for the UK today. All of this can impact future interest rate movements and so can affect GBP. In the EU we see Economic sentiment figures. US data comprises inflation data.

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