Sterling remains range bound vs Euro

Tuesday 10th January 2012
Good morning. It was a much calmer day on the markets yesterday, after the volatility we saw last week. Sterling/Euro fell a small amount, but stayed around the 16 month high seen last week. The cross was range bound between just below €1.21 and €1.2130. The GBP/USD rate was also fairly stable yesterday. The charts below show rate movements:

~Currency Movements on Monday 9th January~

Sterling remains Range-bound vs Euro

There was no key data of note released for the UK yesterday, and as such there was little movement in the Sterling/Euro rate yesterday, but buying levels remain around the 16 month high, ahead of Spanish and Italian debt auctions later in the week.

These auctions are going to be seen as a key test of sentiment towards the beleaguered Eurozone. They will gauge investor willingness to invest in troubled euro zone sovereigns after newspaper reports over the weekend added to concerns the crisis is intensifying.

Also to look out for this week will be the meetings between French President Nicholas Sarkozy and German Chancellor Angela Merkel. They are due to meet to discuss final details of a deal to increase fiscal coordination in the region, but analysts said no significant new measures were expected. Indeed, the last few times they have met with many in the market expecting landmark measure, the markets were left disappointed, and we expect much the same with this meeting.

The euro zone debt crisis has helped the Pound in recent months, as it created investment in the UK gilt market due to investors seeking a safe haven away from the Euro.

But analysts said this flow was more a result of concerns about the euro zone than confidence in UK economic fundamentals. UK growth was weak in 2011 and is expected to remain so. Some in the market expect the UK to fall back into recession, so comments from the Bank of England later this week will be interesting to see.

There is also the outside chance we will see more Quantitative Easing by the Bank of England this week, although Personally I think this is unlikely until February at the earliest.

Today’s Data

In the UK today we see BRC Retail Sales and RICS Housing Prices. There are no EU releases today, but Australia has Building Permits and confidence measures. Stateside, there are measures of economic optimism.

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