Wednesday, 6 July 2011

Will Sterling vs Euro rates go back up?

Wednesday 6th July 2011
Good morning. Sterling actually made some gains yesterday, pushed up by better than expected PMI data, however the recovery is still sluggish and so gains are limited. Portugal's credit rating has also been downgraded to 'junk' and the Euro has weakened slightly. At 08:30am this morning rates are as follows:

GBP/EUR 1.1129
GBP/USD 1.6009
GBP/AUD 1.4967
GBP/NZD 1.9390
GBP/CAD 1.5432
GBP/ZAR 10.785
GBP/JPY 129.43
GBP/DKK 8.3001
GBP/NOK 8.6188
• EUR/USD 1.4381

UK Services PMI pushes Pound higher

The UK service sector sustained "solid" growth in June as volumes of new business continued to rise, according to a closely-watched index. The purchasing managers' index (PMI) edged up to 53.9 in June from 53.8 in May. A reading above 50 indicates expansion, and the figures were much better than had been forecast. As a result Sterling rose slightly against other currencies.

Portugal credit rating downgraded

The credit ratings agency Moody's Investors Service has downgraded Portugal's debt to junk status. The agency said there was a growing risk the country would need a second bail-out before it was ready to borrow money from financial markets again. It said that the programme of economic measures announced last week was "the only way to reverse the course and restore confidence" in Portugal.

Discussions are under way about the possibility of banks that have lent money to Greece waiting longer to be repaid. The news weakened the Euro slightly making it cheaper to purchase, although it's important to remember that the gains in GBP/EUR have been very small as Portugal is a small economy.

Sterling vs Euro still expected to fall

Due to an expected interest rate hike in the EU tomorrow, the Euro is still much stronger than the pound and that's why exchange rates are still quite low, and expected to drop further.

Today's Data

Today we have EU Gross Domestic Product (GDP) figures. This could show growth in the EU, and so expect volatility for GBP/EUR rates.

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