Sterling falls vs Euro but up vs US Dollar

Tuesday 11th October 2011
Good morning. Sterling has dropped vs the Euro, on a French & German plan to do what was necessary to shore up banks, settle the Greek debt crisis and help growth in Europe. This strengthened the Euro and pushed rates down. The Pound was up against the US Dollar. At 08:30am this morning rates are as follows:

GBP/EUR 1.1462
GBP/USD 1.5658
GBP/AUD 1.5709
GBP/NZD 1.9998
GBP/CHF 1.4136
GBP/CAD 1.6121
GBP/ZAR 12.295
GBP/JPY 120.02
GBP/DKK 8.5298
GBP/NOK 8.9204
• EUR/USD 1.3653

French / German plan strengthens the Euro

The Euro gained strength yesterday as investors took comfort from the pledge by French and German leaders to do what it takes to protect European banks from the debt crisis. This pushed the GBP/EUR rate down as markets were calmer about developments with the EU debt crisis.

Markets were also boosted by the bailout of troubled Franco-Belgian bank Dexia, dispelling fears it could go bankrupt. Following talks with French President Nicolas Sarkozy in Berlin on Sunday, German Chancellor Angela Merkel said the two nations were "determined to do the necessary to ensure... the recapitalisation of Europe's banks".

The leaders said they were close to a detailed package to ease the crisis and would give further details within weeks. All eyes are now on the G20 meeting in Cannes at the beginning of November, analysts say.

The net result is GBP/EUR rates slipping back towards the lows we saw last week after the BoE announced further QE.

Sterling recovering slightly despite fall in GBP/EUR

Despite the stronger Euro pushing rates down, the Pound was actually up slightly against the US Dollar and other currencies. Analysts said a lack of UK data meant moves in the pound were largely driven by swings in risk appetite, with the negative reaction to the announcement of more quantitative easing (QE) from the BoE wearing off.

"The market is coming back to the view that a country taking affirmative steps to resolve its problems is supportive for a currency," said Lee McDarby, head of dealing at Investec.

BoE policymaker Martin Weale said on Sunday there was still room for more QE, as Britain's economy struggles in the face of fiscal austerity and a potential deepening of the euro zone's dent crisis.

"Normally more QE would be negative for a currency, but given most of the major central banks are contemplating more easing themselves, it's not weighing on the pound as much this time around," said Michael Derks, chief strategist at FX Pro.

Today's Data

Industrial and Manufacturing production figures are releases from the UK today. These will be watched quite closely as it’s one of the few sectors showing growth, so poor results could reflect a slowdown in the economic recovery. There is also a GDP estimate for the UK showing total growth. With markets open after the break in the USA, the minutes to the recent FED decision to hold rates will be released.

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