Sterling vs. Euro 28th March 2011 The weekly report

Euro28th March 2011 – Sterling vs. Euro – The weekly report.

In the build up to last week all eyes were focussed on George Osborne’s budget on Wednesday, however, in what was a busy week it was UK retail sales that most affected Sterling’s performance against the Euro.

Monday started well for the UK with Rightmove house prices showing a slight increase although movement in the market is mainly limited to the top end. The market’s reaction was limited as traders were waiting for Consumer Price Inflation (CPI) out on Tuesday.

Consumer Price inflation is a key measure of the economy that looks at the change in prices of consumer goods and services purchased by households. February’s CPI figures were expected to show a growth from 4% to 4.2% but in fact came out better at 4.4%. As expected the Pound began to gain against the Euro as the figures were interpreted that an Interest rate rise in the UK is more probable.  However there were some in the market, including currency analysts at HSBC, who believed the Pound was overpriced, saying rising inflation at a time of fiscal austerity was a reason to sell the Pound, rather than buy. As expected this curbed Sterling’s performance somewhat.

Euro Pound Graph – March 2011

Euro Pound  Graph March 2011

On Wednesday the Bank of England’s Monetary Policy Committee maintained its 6-3 split in favour of keeping rates on hold this month, seeing no major change in the medium-term outlook despite the CPI data on Tuesday. At lunchtime on Wednesday George Osborne’s budget unveiled cuts in the 2011 growth forecast to 1.7 percent from 2.1 percent as well as commenting that soaring oil prices mean inflation will remain between 4 and 5 percent this year. As Alejandro Zambrano, market strategist at FXCM commented, ‘Low growth and high inflation does not make good news for the currency’.

Despite the budget, Sterling remained relatively stable against the Euro and it wasn’t until disappointing UK retail sales were released on Thursday that we saw the Pound start to lose value. Sales in February fell 0.8% on the month against forecasts for a smaller decline of 0.6%, sharply slowing the annual rate of growth to 1.3% from a downwardly revised 5.1% in January. Added to this,  the ratings agency ‘Moody’s’, said that Britain’s triple-A credit rating could be at risk if slower growth makes it harder for the government to rein in its budget deficit.

These two pieces of information effectively threw the Pound into freefall against the Euro throughout Thursday and well into Friday with the Pound falling to its lowest level in 2011. The Pound’s fragility against the Euro was based on concerns over the state of the UK economy and uncertainty as to when rates in the UK will be raised which BOEWATCH suggests is more likely to be in August rather than July as previously thought. Whilst in the Eurozone, Trichet confirmed he planned to press on ahead with the raising of interest rates potentially as soon as April despite deep concern over some of their member states, such as Portugal, who are looking almost certain to require a bailout from the European Central Bank.

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Bargain Bungalow for sale on Chayofita Tenerife €69950

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Las Americas Las Terrazas Bargain Apartment for sale €110k

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Sterling vs. Euro – 14th March 2011

Euro14th March 2011 – Sterling vs. Euro – The weekly report.

Sterling had another poor week last week heading toward a 6 week low against the Euro. The main blow to Sterling was landed at Thursdays Bank of England meeting where the Monetary Policy Committee again voted for a hold on interest rates.

This hold coupled with the news that chief rate hawk Andrew Sentence is to step down from the MPC in May  triggered most analysts to reduce their expectation of a UK rate rise in 2011. The knock on effect to the currency market saw many UK banks & traders cut their pro GBP long positions on Sterling, deciding instead to sell the pound short with little confidence in the future performance of the pound.

Euro Pound Graph – 14th March 2011

Euro Pound Graph

These moves came in the backdrop of Jean Claude Trichet’s statement last week that the ECB could raise rated as soon as April, so acting as a second quick blow that appears to have left the Pound on the ropes.
Indeed, callous as it sounds the earthquakes and tsunamis that tragically struck Japan and the Pacific Rim on Friday only worsened the pounds plight, with a knock on effect felt from a dip in UK stocks to a 3 month low.

Obviously your currency requirement can be affected by events ranging from the commonplace such as central bank meetings and unemployment figures and by the unimaginable events like those last week. Keeping in contact with an experienced broker is your only way of trying to navigate the notoriously volatile currency markets.

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Sur y Sol Bargain Los Cristianos 2 Bed Apartment – €125,000

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Sterling vs Euro Exchange Rate Report – 7th March 2011

Euro7th March 2011 – Sterling vs. Euro

Sterling vs. Euro exchange rates have not fared well over the last week. Through most of the week Sterling had actually recovered quite well against the Euro, supported by better than expected housing data and inflation figures early in the week. All that was overshadowed however when the European Central Bank (ECB) president said on Thursday that interest rates were going to rise in the EU as soon as next month. As the chart below shows, this caused rates to fall close to a 3 month low:

European Central Bank President Jean-Claude Trichet said on Thursday that euro zone rates could rise next month — stunning markets which were expecting a rise late this year. He also pledged “strong vigilance” on rising inflation, a phrase that in the past has signalled a forthcoming rate rise.

Euro Pound Graph – 7th March 2011

Euro Pound Graph 7th March 2011

“There are significant risks on the upside for euro/sterling and yields spreads have moved in favour of the euro after yesterday’s comments from the ECB,” said Adrian Schmidt, FX strategist on Friday.

For most of the year so far, most analysts thought the UK would raise interest rates by mid year, with the ECB following suit much later in the year. This is reflected in the upwards trend shown in the graph above. Now however it seems that the tables have turned, and the EU will be raising rates before the UK. This has reversed the trend, and the Euro is now gaining on Sterling.

Higher interest rates strengthen a currency because of the higher return on offer to investors. The recent comments have therefore strengthened the Euro significantly, making it more expensive to purchase.  So the gains the pound has made all year have now been largely eroded. Given the harsh austerity measures on the way in the UK there is not much to suggest rates will bounce back any time soon.

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