Wednesday, 23 February 2011

Sterling vs Euro down ahead of BoE minutes

23rd February 2011
Good morning. Why did Sterling fall agains the Euro? Yesterday Sterling vs Euro was well over €1.19, however yet again the high was short lived. Sterling fell due to risk aversion due to tensions in the Middle East, and also comments by an ECB policy member strengthened the Euro making it more expensive to purchase. At 08:30am this morning rates are as follows:
  • GBP/EUR 1.1816
  • GBP/USD 1.6218
  • GBP/AUD 1.6153
  • GBP/NZD 2.1715
  • GBP/CAD 1.6003
  • GBP/ZAR 11.528
  • GBP/JPY 134.00
  • GBP/HUF 320.68
  • GBP/NOK 9.1484
  • EUR/USD 1.3719

Sterling falls on Middle East tensions

Worries stemming from growing tension in North Africa and the Middle East prompted investors pare back positions in riskier assets, including Sterling. Due to the problems causing rising oil prices, investors are moving to safe haven currencies such as the US Dollar.

ECB comments strengthen the Euro

The pound was also lagging the euro which received a boost from hawkish comments from European Central Bank policymaker Yves Mersch. Mersch was quoted as saying he would not be surprised if the bank sharpened its language on inflation. This signals that interest rates may go up in the EU before the UK, and as a result the Euro is gaining strength.

Bank of England minutes today; volatility expected

Attention this morning is on the minutes to the recent Bank of England decision to hold interest rates. The minutes show what was discussed, and how many of the members voted to raise rates. In the last meeting 2 of the 9 members voted for a rate hike.

If a third member joins them it will show there is growing speculation the Bank of England will raise rates in the coming months. This is what has led to a sharp spike in Sterling in the last week, but analysts said this could leave the currency vulnerable to position adjustment.

If there are indeed 3 members now pushing for higher rates, we expect Sterling to make some gains. As this is expected though it may already be priced into the market, and so gains if any may be limited. Take into account the rising Euro due to yesterdays comments, and it's hard to see if GBP/EUR will go that much higher than it already is.

Today's Data

As mentioned above, the BoE minutes at 09:30am is the most important release today. We also have EU Industrial order figures which are released this morning. This is a barometer of the manufacturing sector and can affect the value of the Euro. From the US there are home sales figures released later in the afternoon.

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