Tuesday, 17 May 2011

Weak data this week could hurt Sterling

17th May 2011
Good morning. Sterling fell against the euro yesterday and was seen vulnerable before UK data this week, including inflation and jobs numbers, which could add to the view that interest rates will stay on hold in the coming months. EU debt worries however are pulling rates back the other way this morning, and at 08:30am rates are as follows:
  • GBP/EUR 1.1462
  • GBP/USD 1.6241
  • GBP/AUD 1.5321
  • GBP/NZD 2.0780
  • GBP/CAD 1.5831
  • GBP/CHF 1.4377
  • GBP/ZAR 11.333
  • GBP/JPY 132.18
  • GBP/HUF 306.54
  • GBP/NOK 9.0622
  • EUR/USD 1.4164
Data this week that could push Sterling down

Economic data today is expected to show inflation up in April vs March, but most in the market believe recent signs of a shaky UK economy will prevent the Bank of England from raising rates from historic lows soon.

Jobs data on Wednesday and retail sales numbers on Thursday could add to this view, while the release of BoE meeting minutes on Wednesday will be watched closely for any shift in tone from policymakers.

EU debt worries could push the Euro lower

Despite fears over Sterling weakness threatening to push GBP/EUR rates lower, the Euro could also fall back towards recent 7 week lows against sterling, as concerns over Europe's debt crisis are expected to hurt the shared currency.

Euro zone finance ministers are likely to back a bailout for Portugal and are also expected to pressurise Greece to deliver on agreed fiscal and privatisation targets if it wants new emergency financial aid next year.

What do the analysts say?

"We expect sterling to do better against the euro as a number of hedge funds are still long on the euro and we could see some of those positions being unwound," said Michael Derks, chief strategist at FXPro.

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