May 31, 2011 Leave a comment
Euro Pound Graph for May 2011 – May was a good month for Sterling against the Euro seeing the pound recover due to problems within the Eurozone
Sterling made strong gains throughout the last week in May against the Euro broadly off the back of continued market commentary regarding the problem of the debt crisis in Greece. At its best the Pound gained almost 2 Cents against the Euro from where it started at the beginning of the week.
The pound’s rise came in spite of data confirming Britain’s economy made a sluggish start to the year as household spending saw its sharpest quarterly fall in almost two years reinforced the view that UK interest rates were unlikely to rise soon. It was certainly encouraging to see that the pound has gained ground against the Euro during May and that coupled with low property prices will certainly help the Tenerife property market. It is also a much needed boost for tourism, especially if it is sustained.
Euro Pound Exchange Rate Graph– ~May 2011
Problems continued for Greece and the Eurozone following comments made by Eurogroup President Jean-Claude Juncker who said that should the International Monetary Fund not pay its next tranche of aid to Greece, there would be pressure on reluctant European Countries to do so.
Commenting on the GBP/EUR cross, Ankita Dudani, currency strategist at RBS said “It’s a combination of news on the euro zone, including Juncker’s negative comments on Greece. There’s a lot of uncertainty about what a debt profile would contain and how far it may go -Sterling, on the other hand, doesn’t have the same baggage.” She added that compared with the euro, the UK was in a better economic position given that it had a single monetary and fiscal policy unlike the euro zone, which is suffering from increasing political tension among its 16 member nations.
Whilst Sterling has indeed been benefiting from problems within the Eurozone, Euro purchasers should remain somewhat cautious about the medium to long term outlook for the pairing as Sterling still faces many downwards risks including PMI inflation data as well as the fact that Eurozone rates are still expected to rise again this year whilst UK rates are not expected to move until at least February next year.
This recent movement that Sterling has benefited from has far more to do with concerns within the Eurozone rather than fundamental Sterling strength. The UK economy is still a long way from being described as ‘powerhouse’ as it continues to battle rising inflation and slow growth – both of which will leave Sterling vulnerable once the furore with Greece no longer dominates the financial headlines.
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