Sterling/Euro hits 8 month high on Italian Bonds

Thursday 10th November 2011
Good morning.The Pound rose to an 8 month high yesterday against the Euro, after Italian bond yields rose to level of 7%, seen as unsustainable and taking the EU debt crisis to new levels. Sterling dell against the US Dollar however, as investors sought the safe haven status of the currency and by worries that the crisis in Britain’s euro zone trading partners could push the UK economy back into recession. Rates at 08:30am are as follows:

• GBP/EUR 1.1753
• GBP/USD 1.5917
• GBP/AUD 1.5768
• GBP/NZD 2.0517
• GBP/CHF 1.4464
• GBP/CAD 1.6307
• GBP/ZAR 12.763
• GBP/JPY 123.47
• GBP/DKK 8.7469
• GBP/NOK 9.1246
• EUR/USD 1.3542

Italian Bond Yeilds weaken the Euro

Italy’s cost of borrowing has touched a new record, a day after Prime Minister Silvio Berlusconi said he would resign once budget reforms were passed. The rate has risen to 7% which is widely seen as unsustainable, and Italy would not be able to repay debts at this rate. The net result is that investors fear that Italy could become the next victim of the debt crisis.

The euro fell almost three cents against the dollar and also fell against Sterling. The net result is GBP/EUR rates surging to their best since near the start of the year, and 5 points higher than just 2 weeks ago, creating excellent buying levels for those wishing to buy Euros.

If you need Euros in the next 6 to 12 months, contact us today to discuss our forward contracts, where you can lock in the current exchange rate, but only pay 10% of what you want to convert now, and the rest when you need your currency. This will protect you against a fall in the rate.

Bank of England meeting today

Today at 12:00pm the Bank of England will announce their interest rate and Quantitative Easing decisions. It’s expected that the BoE will leave interest rates on hold, but there is a chance further QE will be pursued which could reverse the gains in GBP/EUR and push rates lower.

Also weighing on sentiment towards the pound, data on Wednesday showed Britain’s trade deficit deteriorated much more than expected in September to 9.814 billion pounds, its widest since the series began in 1998.

The Confederation of British Industry said the risk of another recession had risen as it cut its forecasts for UK economic growth, although it believed Britain could avoid this. Consistent weakness in the UK economy prompted the Bank of England to adopt further quantitative easing last month, which is often considered currency negative as it involves flooding the market with pounds.

Today’s Data

The busiest day of the week for data. Today the Bank of England announces their latest decision on interest rates. They are likely to be left on hold again, but some in the market predict there is a risk they will embark on another round of Quantitative Easing – if so expect GBP rates to fall.

In Australia we have employment figures. Germany releases inflation numbers which could drive EU interest rates. In the USA we will see Jobless numbers, a budget statement from FED.

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