Sterling Euro exchange rate forecast will the rates last this high?

Friday 3rd February 2012
Good morning. Sterling was pretty steady against the US Dollar yesterday, remaining around the 2.5 month high. Against the Euro it was up and down, but remained in the €1.20’s all day. The Pound is being supported by a cautiously optimistic outlook for riskier currencies and data from the UK which pointed at growth in the construction and manufacturing sectors. Below shows how rates moved throughout the day yesterday:

~Currency Movements on Wednesday 1st February 2012~

Markets Flat

There is little to report in fact with regards to yesterdays currency movements. Most data came out roughly as expected, and there wasn’t much volatility. Pound/EUro remained between €1.20 and €1.2080, and the Pound/Dollar rates hovered around the 2.5 month high for most of the day.

The GBP/EUR rate briefly spiked as there was some uncertainty over a Greek debt swap deal and an increasingly ominous outlook for Portuguese sovereign debt kept investors wary of the common currency. The European Central Bank is expected to keep offering cheap money to euro zone banks to try and free up liquidity and get them lending to companies and consumers, however, and that kept the spike limited and pulled rates back down to where we started the day, and the chart above illustrates.

Markets await next weeks key UK data

Despite the relative calm we saw yesterday, we still think rates are very unlikely to remain at the current levels for long. Persistent worries over the UK economy and the likelihood that the Bank of England will announce an increase in its asset purchase programme next week were likely to keep the pound in check, with data from the dominant service sector awaited on Friday.
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Today’s Data

We end the week with more UK House price info, this time from the Halifax. There are also further inflation numbers to add to those released earlier in the week. The Eurozone also has further inflation numbers and Retail Sales. Across the pond, we have Non-Farm Payrolls and Unemployment data – both of which often affect GBP/USD rates.

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