Tuesday, 19 April 2011

Pound up vs Euro on debt worries

19th April 2011
Good morning. Sterling rose vs the Euro yesterday as the single currency weakened due to debt concerns. The US has had it's credit rating downgraded, but there were no real gains as the pound may struggle as investors price out the possibility of a UK interest rate rise next month. At 08:30am this morning rates are as follows:
  • GBP/EUR 1.1408
  • GBP/USD 1.6244
  • GBP/AUD 1.5522
  • GBP/NZD 2.0660
  • GBP/CAD 1.5659
  • GBP/CHF 1.4561
  • GBP/ZAR 11.113
  • GBP/JPY 133.99
  • GBP/NOK 8.8711
  • GBP/HUF 304.39
  • EUR/USD 1.4253
Pound gains vs weaker Euro

Portugal has begun talks with international authorities about the terms of a bail-out. Meanwhile Greece, which received a bail-out last year, denied reports that it would have to restructure its debts.

The euro lost 1% of its value against the dollar as a result of the reports and also fell vs Sterling, helping push GBP/EUR rates up from the near 1 year low last week.

The market nervousness also spread to Spain, which had to pay sharply higher interest rates to borrow money for 12 months at an auction on Monday. Officials have suggested that the terms of Portugal's rescue deal will be agreed by the middle of May. It is the third member of the euro to seek a bail-out in just over a year.

Despite the weak pound due to interest rate expectations being pushed back, the weaker Euro has presented temporary respite.

US warned on credit rating, weakening US Dollar

The US has been warned that the credit rating on its government debt could be cut by Standard & Poor's. S&P is concerned that Democrats and Republicans will not be able to agree a plan to reduce the growing US deficit.

It has downgraded its outlook from stable to negative, increasing the likelihood that the rating could be cut within the next two years. The news has weakened the US Dollar slightly, but not by much. GBP/USD remain about the same due to the weak pound. High oil prices and the credit rating downgrade mean rates remain close to a 14 month high, so not a bad time to purchase USD.

Today's economic data

No data for the UK today. The EU releases inflation data however which could cause GBP/EUR to drop should the figures be high. Australia releases its minutes from the most recent interest rate decision. Elsewhere we have Canadian inflation figures and housing data from the USA.

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