Sterling vs Euro Exchange Rate Report – 7th March 2011
March 7, 2011 1 Comment
7th 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
“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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