Tuesday, 8 March 2011

Sterling falls to 5 month low vs Euro

8th March 2011
Good morning. Sterling fell against the Euro and US Dollar yesterday, mostly on continued speculation the EU will be raising interest rates soon, giving the single currency strength and making it more expensive to purchase. Today we'll look at Sterling, Euro, and US Dollar in details. First, at 08:30am this morning rates are as follows:

  • GBP/EUR 1.1615
  • GBP/USD 1.6185
  • GBP/AUD 1.6000
  • GBP/NZD 2.1858
  • GBP/CAD 1.5745
  • GBP/CHF 1.5123
  • GBP/ZAR 11.092
  • GBP/JPY 133.42
  • GBP/NOK 9.0313
  • GBP/HUF 314.15
  • EUR/USD 1.3930
Sterling

Sterling has rallied since the start of the year on speculation the Bank of England will raise rates by at some point this year. A weak reading of the UK services sector last week prompted some investors to pare back those expectations which halted Sterlings upward trend.

Trichet's surprise announcement on Thursday has cranked up expectations of an ECB rate rise in April, and analysts said this would also keep the euro stronger than sterling. Some analysts have said upcoming gilt redemptions put the pound at some risk of selling as it could spark some repatriation flows away from the UK currency.

Euro

The euro was supported against sterling, as investors stuck to their view that euro zone rates will soon rise, after European Central Bank President Jean-Claude Trichet reiterated the need to avoid second-round inflation effects. The news last week has caused GBP/EUR rates to fall quite dramatically, and further comments or data from the EU that supports this view, will likely cause further falls in the exchange rate.

US Dollar

We have retreated back from the 13 month high above $1.63, however rates are still above $1.60. Oil prices fell yesterday and this has given the US Dollar some strength causing rates to drop back away.

Today's Data

UK data starts in earnest in the shape of UK House prices and Retail Sales data. These will give an idea of how the UK economy is performing and so could affect Sterling. Late morning we have Factory orders from Germany. In the afternoon US housing data and economic confidence measures are released.

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