Sterling to Euro rates hit around €1.2050 yesterday, but the gains have been short lived. This morning inflation data from Germany showed that the numbers were higher than expected, which has strengthened the single currency making it more expensive to purchase.
Also knocking Sterling down was news that house prices are falling and Retail sales are also dropping, signalling the economic recovery may not be all plain sailing.
Today we have Trade balance data. It is an event that generates some volatility for the GBP. If a steady demand in exchange for UK exports is seen, that would turn into a positive growth in the trade balance, and that should be positive for the GBP. Tomorrow is an important day as we have a report by the Bank of England along with unemployment data.
The Bank of England report is expected to be quite gloomy, and so may cause Sterling to fall further against other currencies. There's an interesting article about this on the Telegraph site which you can see here.
Pound vs US Dollar
Last week saw the Pound continue to rally against the under-fire US Dollar. From the open of 1.5710, we saw a weekly high of 1.5965 reached 4 times over the week before heavy resistance saw levels fall away. There were no major surprises with the Bank of England keeping rates on hold, and US inflation and employment figures broadly as expected. Rates have now dropped away slightly as we hit resistance at close to the $1.60 level.
The primary driver behind the recent movement has been a general tone of Dollar weakness, caused by the reintroduction of risk appetite when market-makers look to move their funds into higher-yielding investments. During times of economic uncertainty, they move the funds to the safe haven of currencies like the US Dollar, and as this climate unwinds, we see the Dollar weaken again as is the case at the moment.
The question on everyone’s mind is whether the Pound will be able to sustain it’s recent gains against the greenback, or even break the psychological 1.60 barrier. I think it's unlikely this week. When we saw the GBP/EUR cross have a similar rally in such a short space of time in May, it was followed by a retracement back in the reverse direction.
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