11th January 2011
Good morning. The pound rose to a 4 month high against the Euro yesterday, due to the ongoing concerns regards some EU countries. Gains were short lived though as housing data weakened Sterling. Rates at 08:30am this morning are as follows:
Pound vs Euro
The single currency was stung by increasing concerns about sovereign debt problems in the euro zone. The euro was on the back foot after a senior euro zone source said at the weekend that euro zone countries are cranking up pressure on Portugal to seek financial help from the European Union and the International Monetary Fund.
They are pushing for this to stem contagion risks from its debt problems already faced by Greece and Ireland. Analysts said the euro would remain under selling pressure on concerns that debt problems will extend beyond Portugal and Spain (another country that investors believe may have to seek aid) while their borrowing costs escalate.
So it's this Euro weakness causing the jump in rates this year.
What about Sterling?
There is nothing particular strong regarding the pound at the moment.. So far this year we have seen a run of uninspiring UK economic data including weak services sector data, poor retail sales and worse than expected housing data.
Given the uncertainty surrounding the UK economic recovery and the effect the austerity measures will have on growth, the market is focusing on the EU debt problems and it is this that is driving rates up at the moment.
If problems persist in the Eurozone then the Euro will remain weak. Mixed economic data from the UK however shows that the recovery is far from certain, and so it’s not a given that rates will continue to rise. Indeed many analysts think that Sterling will not recover until interest rates start to go up, something that’s not likely to happen until much later this year.
So will Sterling go higher against the Euro? In the longer term this is likely, but things may get worse before they get better.
Today we have the British Retail Consortium (BRC) Shop Price Index. This measures price changes in Retail Outlets and is a good barometer of overall consumer confidence. Retail has suffered recently due to the snow, with only John Lewis bucking the trend. It’s also an indicator of inflationary pressures and so can affect Sterling. We also have House Prices today for the UK.
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Labels: EU Debt Crisis, GBP/EUR