Tuesday, 24 May 2011

Pound hits 2 month high vs weaker Euro

24th May 2011
Good morning. In a day of contrast, GBP/EUR rates hit a 2 month high yesterday, but GBP/USD rates hit a 7 week low. The gains against the Euro were short lived though, and have already dropped back away. We'll look at the reasons for this after the usual snapshot of rates as at 08:30am:

• GBP/EUR 1.1462
• GBP/USD 1.6118
• GBP/AUD 1.5279
• GBP/NZD 2.0245
• GBP/CAD 1.5744
• GBP/CHF 1.4222
• GBP/JPY 131.72
• GBP/ZAR 11.256
• GBP/NOK 8.9922
• EUR/USD 1.4062

Pound gains against weaker Euro

The Euro weakened significantly yesterday, on concerns about possible debt restructuring in Greece, a ratings outlook downgrade for Italy and after heavy defeats in regional elections for the ruling parties in Spain and Germany. This made the Euro cheaper to purchase, and pushed GBP/EUR rates up to a 2 month high of just above €1.15.

Also the BoE's chief economist Spencer Dale said in a weekend interview with the Financial Times that the central bank must start to raise interest rates to tackle inflation or risk hurting the economy. This went some way to strengthen the Pound slightly, however when markets opened the gains were wiped out and Sterling fell throughout trading yesterday.

What do the analysts say?

"Sterling's moves have been driven by euro/dollar, but it is getting closer to technical levels that may be difficult to break and we might see some upside for cable," said Jane Foley, currency strategist at Rabobank.

She said the pound may outperform riskier currencies like the Australian dollar as well as the euro, but its scope for more gains was limited due to expectations that a fragile UK economy will keep interest rates on hold in the coming months.

By contrast the European Central Bank is expected to raise rates again after a hike in April, particularly given solid growth in Germany, and analysts said this could help the euro hold above near-term technical support.

Summary

With rates close to the best they have been in 2 months, and the fact that another interest rate hike in the EU could strengthen the Euro, the levels currently on offer may not be around for long. As markets are so volatile, holding out for an inch could mean losing a mile. If you need to buy Euros then contact us today to discuss our commercial exchange rates.

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