Since my post a week ago, as you can see below, the exchange rate has recovered and risen back to its 7 year high of €1.35.
As we will see in a moment, there are several factors that have caused the gains, including robust UK economic data giving the Pound a lift, the Euro remaining weak due to uncertainty over Greece, and stronger data from the United states which has also caused the Euro to weaken. In today’s report we’ll take a look at what has been happening, and whether the rate could go even higher in the coming months.
Sterling/Euro for the last 7 days:
UK data impresses and lifts Sterling high
Of late we have seen strong UK economic data that has served to strengthen Sterling. Better than expected UK manufacturing data this morning helped, which follows on from very robust private sector surveys last week. Manufacturing, construction and services sectors all came in ahead of forecasts in recent days. Also, an economic think tank said Britain's economy was on track for its strongest growth in nearly 10 years in 2015, all of which has lent support to the Pound and helped it gain against other currencies.
Attention will now shift to Thursday's Bank of England inflation report, in which we are likely to see updated growth and inflation forecasts, and will also help determine when interest rates will go up in the UK. However, those hoping the Pound will continue to strengthen should be cautions, as the upcoming election in May will likely create much uncertainty in the market and could well weaken the Pound brining exchange rates back down.
Euro remains weak over Greek Euro exit fears
David Cameron today held a meeting to discuss the possible impact on the UK of possible Greek exit from the Eurozone.
There was agreement that the probability of Greece adopting a new currency had increased, however I still think that there will be an agreement between Greece and other EU governments to keep Greece in the single currency.
While uncertainty persists however, the Euro is likely to remain weak and that’s keeping GBP/EUR levels at 7 year highs of €1.35. Read more about what's happening in Greece here on the BBC website.
US Jobs data continues to impress, giving the USD strength and weakening Euro further
Last week figures showed that the USA created 257,000 jobs last month, which was much higher than forecast. Furthermore, the number of jobs created in November and December was revised sharply higher. This means that last month was the 11th in a row in which more than 200,000 jobs were created, which is the best in over 20 years.
The effect on the currency markets was US Dollar strength which caused GBP/USD to fall. This also meant capital flows out of the Euro into the US Dollar, which weakened the Euro and helped the GBP/EUR rate to rise.
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