Why has Pound gained against Euro June 2010?

Good Morning. Sterling has risen against most currencies after news the Prudential would not go ahead with the takeover of AIG's asian arm. This has caused Sterling exchange rates to rise against a basket of major currencies. We'll look at this in a moment after the usual snapshot of rates as at 08:30am:

Prudential Takover causes Sterling strength

In March, Prudential agreed to buy AIA for £25 Billion but the deal collapsed after Prudential failed to negotiate a lower price yesterday. AIG said on Tuesday that it would not consider any revision to the terms of the deal. The Prudential said it faced £450m in costs related to the deal.

So why has this boosted the pound? Analysts said sterling would benefit if the bid failed, given that Prudential in recent months has sold sterling for dollars to fund the anticipated deal, and may need to sell back the U.S. currency for pounds. Now, huge sums are flooding back into Sterling, supporting the pound and pushing exchange rates up.

Eurozone unemployment rises

Unemployment in the eurozone rose again in April to a fresh all-time high. Unemployment in the 16 nations that use the euro now totals 15.86 million - equivalent to 10.1% of the population.

This weakened the Euro, helping push GBP/EUR rates through the €1.20 barrier yesterday. Meanwhile, the euro has hit a four-year low against the dollar. It was trading as low as $1.2111 at one stage, and was also down to a one-year low against the pound, with one pound buying 1.1935 euros.

So, sterling strength coupled with Euro weakness mean we're seeing the best buying rates since October 2008. You can take advantage of these rates with a Forward contract, even if you don't need your currency for up to 2 years. Contact us today to find out more about this type of contract.

Summary

Continued Euro weakness coupled with demand for the Pound has pushed rates to attractive buying levels for the GBP/EUR cross. Analysts said the UK currency would benefit in the near term from stronger commodity currencies due to optimism about the economies of Asian countries, which are voracious consumers of oil and other natural resources.

Once the problems in the EU fade away, investors will likely move funds back from USD to Euro, causing strength in the single currency later in the year. Analysts will be watching developments with regards to spending cuts in the UK, along with economic measures to see how the UK is faring. The main news continues to be the weak Eurozone which is presenting the current buying opportunities.

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