Pound gains almost 2% against Euro

6th May 2011
Good morning. Well, after weeks of GBP/EUR rates falling, we saw a significant gain in rates yesterday after the Euro weakened. We'll look at the reasons why after the usual rate snapshot, as at 08:30am:
Pound vs Euro rates gain nearly 2%

Yesterday both the Bank of England (BoE) and European Central Bank (ECB) left interest rates on hold as expected. It was the comments from the ECB president, Jean Claude Trichet, that caused the Euro to weaken and rates to rise.

He offered a much less hawkish tone on the central bank's rate outlook than markets had been expecting after April's hike, prompting traders to book profits on the euro's gains versus sterling after weak UK services data earlier in the day drove the pound lower against the common currency.

"The ECB sounded more dovish at its press conference, which is weighing on the euro," said Raghav Subbarao, currency analyst at Barclays Capital. "Today's move is a euro story rather than a sterling story."Markets are now not pricing in a BoE rate hike until November or December, while many in the market see the possibility of another ECB rate rise in summer.

So, because he signalled no futher rate rises in the EU are likely in the coming months, the Euro weakened and became cheaper to purchase. At one point yesterday rates sat at €1.1055, however by the afternoon rates had recovered to €1.1260.

Summary

A 2 point gain in one day is quite unusual. If you need to purchase Euros you may wish to take advantage of the single currencies weakness, as many analysts think that the general downward trend may continue in the coming weeks and months.

Today's Data

We end the week with PPI for the UK which can often cause volatility for Sterling. US and Canadian unemployment figures are released today also. The only EU data of note is French Trade balance figures and German industrial production.

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