Thursday, 5 May 2011

GBP at 13 month low vs EUR ahead of interest rate decisions

5th May 2011
Good morning. Sterling slipped to a fresh 13-month low against the euro on Wednesday after weak British construction figures boosted views UK interest rates could stay on hold till year-end, in contrast to a hawkish euro zone outlook. At 08:30am this morning rates are as follows:
  • GBP/EUR 1.1104
  • GBP/USD 1.6529
  • GBP/AUD 1.5405
  • GBP/NZD 2.0869
  • GBP/CAD 1.5831
  • GBP/CHF 1.4151
  • GBP/ZAR 10.966
  • GBP/JPY 132.63
  • GBP/HUF 293.33
  • GBP/DKK 8.2791
  • EUR/USD 1.4885
Pound remains weak against Euro

So why is Sterling so low against the Euro? It's all to do with interest rate expectations. Recent figures have meant analysts are now pricing in a rate hike from the Bank of England around the end of the year, while the European Central Bank is expected to raise rates for the second time this year by July.

Higher interest rates generally strengthen a currency as it provides more return for investors. As EU rates are now likely to rise well before the UK, the Euro is gaining against the Pound and this is why rates have fallen this week, following poor economic data that supports this view.

"The UK economy is struggling to get any real momentum," said Simon Derrick, head of currency research at Bank of New York Mellon. "The evidence continues to mount that UK monetary policy is going nowhere this year."

Interest Rate decisions today

We actually have interest rate decisions for both the UK and EU today, at 12:00pm and 12:45pm respectively. Most analysts expect no move from either central bank, however supporting comments from either side could cause volatility.

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