Pound Euro climbs to €1.20 again – will it go higher?

Wednesday 14th March 2012
Good morning. Sterling had a very good run yesterday, gaining against both the Euro and US Dollar. The gains were in part due to better than expected Trade Balance figures, coupled with ongoing concerns over Euros that weakened the Euro significantly following comments from the Eurozone Central Bank president. The charts below show how the Pound gained throughout trading yesterday:

~Currency Movements on Tuesday 13th March 2012~

UK Trade Balance Better than expected

The UK’s trade deficit was less than expected in January, thanks to strong exports of cars to the US, China and Russia, according to data released yesterday.

The deficit on seasonally adjusted trade in goods and services was £1.8bn in the first month of the year, compared with £1.2bn in December, but less than analysts had forecast. The news gave Sterling a boost against other currencies.

Euro weakens following ECB president comments

European Central Bank President Mario Draghi yesterday called on banks and governments to make the most of a lull in the sovereign debt crisis as he seeks to get the ECB back to its main job of ensuring price stability.

Policy makers “see continued signs of stabilization” in the economy and banks “should use this currently more benign environment to strengthen their resilience further, including by retaining earnings, cutting dividends and bonuses,” Draghi said in a speech in Paris today. “The financial system should serve the economy, not the other way round.”

Markets took the comments as hints the lull in the Eurozone crisis could be short lived, with some forecasters increasing the chance of an interest rate cut in the EU. Lower interest rates mean a lower return for investors, and therefore generally weakens a currency.

This weakness was clearly demonstrated yesterday, with the single currency becoming cheaper to buy and GBP/EUR rates again climbing back towards the €1.20 level. Looking at recent trends as a guide, it may not last long at this level. It has reached this level several times in the last few months, only to rapidly drop back away.

Today’s Data

Today there are unemployment figures from the UK which could affect the Pound. In the EU we have various inflationary measures in the form of Consumer Price Index. There are also measures of Industrial production, reflecting the state of this sector. In the USA Import prices is the main data.

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