Smart Currency: Euro holds onto 4 month high against US Dollar [08/03/2011]

Smart Currency: Euro holds onto 4 month high against US Dollar [08/03/2011]

EURO/GBP – 1.1603
US$/GBP – 1.6179
CHF/GBP – 1.5128
CAN$/GBP – 1.5740
AUS$/GBP – 1.5994
ZAR/GBP – 11.103
JPY/GBP – 133.49
HKD/GBP – 12.602
NZD/GBP – 2.1855
SEK/GBP – 10.293
US$/EURO – 1.3941

Sterling fell to a 5 week low against the euro yesterday as expectations of an interest rate hike in the euro zone saw sterling drop below €1.16/£1. Sterling has itself been on a strong run of form since the beginning of 2011 as the Bank of England battles with stubbornly high inflation, but a poor set of figures for services sector activity left many cutting back expectations of a UK interest rate hike. Overnight we had retail sales and house price figures that painted a mixed picture, with retail sales slightly worse than expected. A house price survey showed fewer estate agents reporting a fall in prices, but the picture was still poor. Mervyn King speaks at the Asian Business Association Dinner in London, and ahead of Thursday’s Bank of England meeting this speech will be watched closely.

In the euro zone, the euro hit a 4 month high against the US dollar yesterday after expectations of an interest rate hike as early as next month saw the euro break over the $1.40/€1 barrier. Friday’s downgrade of Spanish debt and yesterday’s downgrade of Greek debt were overlooked as investors focussed on Jean-Claude Trichet’s shock announcement over European interest rates. Call in now for a live exchange rate as there is a lot of volatility in the market.

In the USA, the US dollar has now fallen by 9% against the euro on relative interest rate differentials – i.e. the market expects the European Central Bank to raise interest rates way ahead of the USA. However, data is showing that the US recovery is improving whilst the European debt crisis remains and could flare up at any moment. As a result, many analysts are predicting that the euro will return to levels in the $1.20’s against the US dollar as the fiscal bite takes hold in Europe later this year.

Elsewhere, the South African rand strengthened to a 7 week high against the US dollar yesterday as gold gained to $1,444.95 an ounce and violence in Libya boosted oil to a 29 month high. Against sterling, rand gained by 0.5% to finish the day at ZAR 11.124/ £1.

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