Euro v Pound -14th February 2011

Euro14th February 2011 – The Euro v Pound situation and what could affect values during the coming week.
The Pound endured widespread losses against the vast majority of the 16 most actively traded currencies in the FX Markets on Friday morning last week, and the UK currency also retraced back towards 1.18 against the Euro, after encountering strong resistance in the region of 1.1850. All in all a bit of an anticlimax for Sterling this past week as highly anticipated data releases in the form of an interest rate decision from the Bank of England on Thursday, Retail sales and House prices on Tuesday and PPI input on Friday all failed to have a heavy impact on the strength of the pound, despite positive results in all areas other than the interest rate decision, which remains at 0.5%.

Graph Jan 2011 – February 2011

UK producer prices rose twice as much as initial forecasts in January, which will only serve to add to concerns that the Bank of England is losing the battle to keep a lid on rising prices. PPI input rose 1% from December, the most since April, and exceeded the 0.5% forecast. The Pound also came under heavy selling pressure, after former BoE policy maker Kate Barker said that the MPC may be wary of raising interest rates because of the subsequent impact on the Pound and the threat to the economic recovery.

The UK currency has gained against all but one of the 16 most actively traded currencies this year, as markets priced in a rate hike by June, due to persistent inflation concerns. The comments, combined with concern that that BoE is losing control of inflation, has weakened the Pound and the UK currency will continue to be susceptible to any suggestion that the BoE will refrain from raising rates this year.

Economists are sceptical as to whether the Central Bank will raise rates before the first quarter of 2012, while the National Institute of Social and Economic Research anticipate three 25 basis point increases this year.

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Estate Agent living and working in Tenerife as a property consultant

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