Pound gains vs Euro on Italy bond yields

Tuesday 15th November 2011
Good morning. Sterling fell against the US Dollar yesterday, tracking losses in the euro against the safe-haven U.S. currency as deep-seated concerns about the euro zone’s huge debt problems outweighed investor optimism over a new Italian government. This has weakened the Euro and pushed GBP/EUR rates up, but strengthened the USD pushing GBP/USD rates down. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1697
• GBP/USD 1.5914
• GBP/AUD 1.5607
• GBP/NZD 2.0540
• GBP/CHF 1.4515
• GBP/CAD 1.6212
• GBP/ZAR 12.774
• GBP/JPY 122.47
• GBP/DKK 8.7062
• GBP/NOK 9.1093
• EUR/USD 1.3598

Euro weakens on Italy bond yields

At the weekend we saw a new Prime Minister appointed in Italy, and in what was seen as the first test of his leadership, Italy sold 3bn euros of 5 year bonds yesterday. However, it had to pay more to borrow the money, a rate of 6.29%, indicating continuing unease in the markets.

Late last week, the level had soared to above 7%, the rate at which Greece, Ireland and Portugal were obliged to seek emergency bailouts from the EU. The rate of 7% is significant as that’s where markets think they will be unable to repay the debts, increasing the chance of needing bailout funds.

As a result, the Euro weakened yet again and pushed GBP/EUR rates back to €1.17 this morning. The uncertainty also helped strengthen the safe haven US Dollar, pushed rates back towards $1.59.

German and French economies grow

Both the German and French economies recorded growth in the 3rd quarter, figures showed yesterday. Germany’s GDP grew by 0.5%, and the French economy grew by 0.4%. Both of these were better than expected, but were overshadowed by the continuing debt problems, and so we still saw a net weakness in the Euro.

UK economy still a concern

The Bank is widely expected to cut its forecasts for UK growth, which could pose downside risks for sterling. Figures on UK employment and retail sales this week may put the pound under further selling pressure if they show the economic recovery is continuing to struggle. Markets still expect further Quantitative Easing in December or January, so the Pound remains vulnerable to more falls.

Today’s Data

UK data today includes the Retail Price Index and Consumer Price index. In the EU we see GDP figures from Germany and the EU, and Economic sentiment survey from Germany and the EU, and EU Trade Balance figures. In the USA we see Retail Prices & Inflation data.

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