Sterling hits five-week-high versus euro as sovereign debt issues re-emerge

Tom Tong09/Nov/2010Currency Updates

GBP

Sterling continued its recent strength against the euro as concerns over sovereign debt issues in Europe resurfaced. Sterling hit a five week high against the euro on worries about Eurozone debt in Ireland and Portugal. Encouraging UK economic data of late has also increased interest in the pound. For example, the positive PMI data has continued inflationary pressures causing calls for in interest hikes sooner than anticipated. Sterling was down around 0.2% against the dollar. This morning RICS house price data was worse than expected but this news was countered by better than anticipated retail sales monitor data. There is an interesting day ahead for sterling with GDP estimate figures, industrial production, manufacturing production and trade balance figures to come.

USD

The dollar has been boosted by the improving US economic outlook since last Friday’s US non-farm payrolls came in much better than expected. The dollar has seen levels against the euro and sterling rebalance downwards after the positive data at the back of last week. In an unusually sharp rebuke of US monetary policy, delivered on the eve of the much-awaited G20 summit, Jean-Claude Junker, head of the group of Eurozone finance ministers, said the dollar was undervalued and the Fed stimulus threatened “risks” for the world at large. With QE2 now addressed, the impact of such large stimulus is yet to be seen.

EUR

The euro extended its losses on Tuesday on renewed concerns about high sovereign debt in the Eurozone. Ireland is the latest country to rattle the single currency, with Irish borrowing costs extending a month-long climb on worries about a political impasse in Dublin ahead of a budget vote. The yield on Irish 10-year bonds hit 8% for the first time on Monday. Despite this doom and gloom surrounding the peripheral Euro nations, the powerhouse that has been pulling the block out of recession continued to do well – Germany posted better than anticipated trade balance, current account and export yesterday whilst industrial production figures where slightly down.

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Written by Tom Tong

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