Pound vs Euro outlook for August 2010

17th August 2010
Good morning. Sterling rose against the US Dollar yesterday, after sliding to a 3 week low last week. Risk appetite has improved and so the Euro has also gained. A fall in UK house prices however, put sterling under some selling pressure against the euro. We'll take a detailed look at where Sterling exchange rates may go in a moment, after the usual snapshot of rates as at 08:30am:

Pound vs Euro

Sterling fell yesterday after a fall in house prices. The Euro gained due to easing in risk aversion; what does this actually mean?

Well, last week there were concerns over the EU economy, and world investors don't like risk. Therefore investors moved funds to the safe haven of the US Dollar. Then, after the European Central Bank said it bought minimal government bonds from the euro zone last week, it placated concerns about economic weakness in some parts of the region. This reduced some of the concerns, and risk sentiment turned higher, boosting the euro and the pound against the dollar.

As the pound and Euro are rising in tandem, rates remain steady between €1.21 and €1.22. There are a few data releases which you can read below in the 'Today's Data' section. Most eyes however will be on tomorrows (Wednesdays) data, when we see some key information from the Bank of England.

The minutes to the Bank of England's policy meeting earlier this month will be released, showing how they voted when the decision was made to keep interest rates on hold. One member, Andrew Sentance, is expected to have voted for a rate hike. If anyone joined him, it will likely push the pound higher.

"We cannot imagine anyone joined arch-hawk Sentance in calling for a hike, but it is possible that some other members expressed their concern about the risks posed by rising inflation expectations," said Daragh Maher, strategist at Credit Agricole.

"Any such nuance could allow sterling to extend its gains versus the euro, but talk of a three-way split would have the opposite effect." We await tomorrows data at 09:30am eagerly, as it will likely have the biggest effect in exchange rates this week.

Today's Data

Inflation data from the UK starts the day, along with Retail Sales. The former will give clues as to UK interest rates, and the latter is a barometer of consumer confidence and market conditions. In the US, producer prices will be closely watched. Changes in the PPI are widely followed as an indicator of commodity inflation.

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