Pound goes up vs Euro due to Greek debt

16th June 2011
Good morning. Sterling fell against all currencies except the Euro yesterday, after poor jobs data and slow wage growth added to the view interest rates are going nowhere in the near term. The Euro however weakened significantly on Greek debt concerns, pushing GBP/EUR rates through the €1.14 level. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1433


• GBP/USD 1.6157


• GBP/AUD 1.5326


• GBP/NZD 2.0103


• GBP/CAD 1.5854


• GBP/CHF 1.3757


• GBP/ZAR 11.042


• GBP/JPY 130.20


• GBP/HUF 305.72


• GBP/DKK 8.5248


• EUR/USD 1.4131

Weak jobs data hurts Sterling

Yesterday the office for national statistics (ONS) showed that more than double the amount of people claiming jobless benefit that forecasts had suggested. This shows that the UK recovery is still on very shaky ground, and as a result Sterling dropped against nearly all major currencies.

Sterling Euro rates rise

Against the Euro however GBP/EUR rates rose due to fears over Greek debt. It's to do with the EU banking system; Moody's the ratings agency said it was going to review the ratings of French banks, due to their holding of Greek debt. This weakened the Euro significantly, pushing exchange rates up despite the fact that the pound weakened yesterday.

Pound vs US Dollar

Inflation rose in the US last month, and this pushed market sentiment up strengthening the US Dollar. This compounded the weak pound and GBP/USD rates have fallen sharply into the $1.61's.

Today's data

The main data is UK retail sales, which if poor could hurt the Pound. We also have various inflation measures from the EU, so we think the gains in GBP/EUR will be short lived and could resume it's downward trend if EU inflation is high, supporting the view for an interest rate hike.

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Sterling remains weak despite good Retail Sales

20th May 2011
Good morning. Better than expected Retail Sales yesterday boosted Sterling, and it rose against the Euro and US Dollar. Gains were short lived however, as it did not change things fundamentally and UK growth prospects still looked patchy and consumer confidence fragile. Rates at 08:30am this morning are as follows:

• GBP/EUR 1.1328
• GBP/USD 1.6214
• GBP/AUD 1.5191
• GBP/NZD 2.0447
• GBP/CAD 1.5670
• GBP/CHF 1.4281
• GBP/JPY 132.44
• GBP/ZAR 11.124
• GBP/DKK 8.4449
• GBP/NOK 8.9024
• EUR/USD 1.4308

Retail Sales better than expected

UK retail sales rose by more than expected in April, boosted by the extra public holiday for the royal wedding, and the warm weather. Sales last month were 1.1% higher than March, said the Office for National Statistics.

Demand rose most for clothing, footwear and food products. However, economists warn the big rise in sales is likely to be a one-off, and that consumer spending remains muted. A separate report by the CBI business organisation said that growth in British factory orders had accelerated more than expected in May.

What do the analysts say?

Analysts don't expect this to give the Pound any significant boost however. Howard Archer, chief UK and European economist at IHS Global Insight, also said the April figures should be treated with caution.

"While welcome, we strongly doubt that the 1.1% jump in retail sales volumes in April is a sign that the consumer is roaring back to life," he said.

Interest Rate hike still some way off

The data also did little to change expectations of interest rate hike. Financial markets only fully price in a quarter percentage point interest rate rise in the UK by January next year, having cut back expectations for at least three 25 basis points rate hikes in 2011 that had been factored in earlier this year.

In contrast, investors are pricing in at least two further quarter percentage point rate increases by the European Central Bank. Despite Greece's debt problems, investors are of the view the ECB will keep raising rates as it seeks to fight off inflationary pressures.

Summary

It's the same story of interest rates driving exchange rates. As the UK is unlikely to raise rates this year, while the EU are likely to push their rate up at least twice more, it's likely the Euro may well remain stronger than Sterling, stifling any gains caused by good economic data.

Today's Data

We end the week with Inflation data from Germany, the largest economy from within the EU. Other than that the only other data of note is from Canada: Retail Sales and inflation data

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Sterling gains slightly on Retail Sales, but not much.

17th December 2010
Good morning. Sterling edged higher against the the dollar and the euro on Thursday on robust retail sales data, ending 4 straight days of decline. Gains were limited however due to a mixed outlook for the economy. Rates at 08:30am this morning are as follows:

• GBP/EUR 1.1747
• GBP/USD 1.5626
• GBP/AUD 1.5801
• GBP/NZD 2.1141
• GBP/CAD 1.5720
• GBP/CHF 1.5001
• GBP/ZAR 10.610
• GBP/HKD 12.150
• GBP/JPY 131.13
• GBP/HUF 320.01
• EUR/USD 133.01

Sterling gains on Retail Sales

UK retail sales rose 0.3% in November, broadly in line with expectations. But the previous month's sales were stronger than initially thought, with the Office for National Statistics (ONS) revising up October's figure from a rise of 0.5% to 0.7%.

The ONS said November's growth was driven by sales of toys, sporting goods, watches and jewellery. Retails sales are taking as an overall indicator of consumer confidence, and so the better than expected results helped push Sterling slightly higher against both the Euro and US Dollar.

EU agrees on permanent Eurozone rescue fund

EU leaders have agreed to set up a permanent mechanism to bail out any member state whose debt problems threaten the EU. The leaders agreed that in 2013 the permanent mechanism would succeed the eurozone's 750bn-euro bail-out fund, the European Financial Stability Facility (EFSF).

"We stand ready to do whatever is required to ensure the financial stability of the eurozone as a whole," Mr Van Rompuy said. The agreement says "member states whose currency is the euro may establish a stability mechanism, to be activated if indispensable to safeguard the stability of the euro as a whole".

The summit comes amid continuing concern about stability in the eurozone, as national debts and deficits have soared above the EU's targets. Portugal and Spain have been under financial market scrutiny since the Irish Republic was forced to be bailed out.

The news seems to have calmed the markets and given the Euro some strength. It's the weakness in the Eurozone of late that pushed GBP/EUR rates near to €1.20, so the better climate in the Eurozone could cause rates to fall.

Today's Data

Nothing of note for the UK today. From Europe we see German Business climate and business assessment measures. Also from the EU we have Trade Balance figures. This is a balance between exports and imports and usually generates some volatility for GBP/EUR rates.

Have a great weekend.

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