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Sterling reverses most of Tuesdays losses against the euro


Yesterday saw the pound snap a three day gain against the euro after Moody’s Investors Service said it
may lower the credit ratings of 14 British lenders and a report showed the UK budget deficit widened in April. It was not all a one way street for the pound however as we did see a gain for cable as a cent was gained during the trading session. Looking at the economic data released, Net borrowing was £10B compared with £7.2B a year earlier. The median of 12 forecasts in a Bloomberg News survey was for a shortfall of £6.5B. The Moody’s announcement is a fresh source of vulnerability for the pound. The deficit being slightly worse than expected is yet another reminder that there’s a very long way to go in order to rectify the dreadful state of the UK’s public finances. This all leads to sterling having a hard battle on its hands to make inroads against its peer’s. This morning has seen the euro come under pressure which has seen GBP/EUR make back some losses from yes¬terday’s trading session. One key issue to keep an eye on  throughout the summer with regards to the potential direction of currencies will be interest rates. The BoE policy makers voted 6-3 this month to hold interest rates at a record low of 0.5%. Money markets are at present pricing in a 25 basis point increase in the key rate in Febru¬ary, which is one of the reasons why sterling is not getting  much support. If a rate rise comes sooner than that, you would normally expect the currency to get a lift.
Data 09.30: Revised GDP q/q expected 0.5% unchanged.     
The euro weakened again this morning as Greek debt worries continue to keep pressure on the single currency. The euro has more or less given up yesterday’s gains made against the pound, lost half a cent in EUR/USD and fallen for a third day against the yen on speculation Europe’s sovereign debt crises is worsening and as the re¬gions industrial expansion slows. Not only are the sovereign debt concerns weighing on the euro, there's the additional headache of weaker data now which is adding to the selling pressure. With the uncertainty now seemingly pervading the outlook, your going to see support for safe haven assets, namely the dollar and yen.
Data 9.00: Italian Retail Sales m/m –0.1% from 1.0%.

The dollar advanced against its major counterparts overnight as Asian stocks slumped and commodities includ¬ing oil declined, boosting demand for the safest assets. The dollar index approached a seven-week high before US reports tomorrow forecast to show the worlds largest economy is recovering at a faster pace and initial job¬less claims decreased for a third week. The dollar rallied to a two-month high against the euro amid concern that Europe's debt crises will spread as policy makers disagree over how to solve Greece’s fiscal woes. The dollar is being bought as there is a risk-off move in the market with falling stocks. The greenback also took half a cent off the pound as cable fell from $1.62 to trade at $1.6150 this morning. News out tomorrow is also ex¬pected to show the US economy grew at a 2.2% annual pace in Q1, up from 1.8% initially projected, according to a Bloomberg News Survey.
Data 13.30: Core Durable Goods orders m/m 0.7% from 2.3%.  

• A damaging political stalemate is threatening to plunge Greece deeper into crises as hopes of cross-party support were dashed by the main opposition leader.


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GBP/USD 1.6164
GBP/EUR 1.1510
EUR/USD 1.4040
GBP/JPY 132.40


GBP/NZD 2.0380
GBP/ZAR 11.3734


GBP/CAD 1.5830
GBP/SGD 2.0230


red-down; blue-up (snap shot)

These rates are for indication purposes only.

For more information or to get the latest spot rates contact:

John Paul Georgiou

Senior Foreign Exchange Broker

+44 (0) 20 7959 6917


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