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.

If you have yet to open a trading facility to gain access to commercial rates of exchange click here to open an exchange rate account today and an experienced trader will be in touch to discuss your requirement and offer expert market knowledge.

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About Expedia Tenerife Property
Estate Agent living and working in Tenerife as a property consultant

One Response to Sterling vs Euro Exchange Rate Report – 7th March 2011

  1. Tim says:

    I hope the Euro strengthens to parity against the Pound. In fact, it should be at parity by now…. A weak pound benefits the UK economy as well as your exports. I do my cross-border grocery shopping in Asda Enniskillen and save a fortune on my EUR’s anytime I compare my grocery bills between the Irish Republic and the north of Ireland.

    The UK exchequer earned GBP700 million in 2009 from cross border shoppers here, why ruin it? Devaluing your currency is the best option available for growth. Perhaps the BOE will adjust the exchange rate with the Euro to 1GBP = 1EUR

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