Sterling drops against euro on European interest rate speculation

Tom Tong04/Mar/2011Currency Updates

Overview

Yesterday saw sterling dip against both the euro and the dollar. Against the euro, by the close of business in the UK sterling was down by over 1% on the day as European interest rate speculation became more bullish. Meanwhile the pound also dipped by around 0.5% on the day against the dollar as the market positions itself for this week’s key US data release, the Non-Farm Payrolls number. By the end of the UK session yesterday the euro was up by just under 0.5% against the dollar.

GBP

With a lack of headline data yesterday in the UK, sterling losses were driven by market sentiment from other economic news. Euro strength was fuelled by Trichet, yesterday indicating that a European interest rate hike is now a strong possibility at their next meeting. Meanwhile, against the dollar the consensus of a panel of Bloomberg economists forecast today’s Non-Farm Payrolls number to be strong. The panel expect the number to show that 200,000 new jobs have been created.

EUR

The increased expectations of a rate hike by the ECB at the next meeting heavily supported the euro yesterday. A strong session saw the euro gain 1% against the pound and 0.5% against the dollar. Market sentiment towards the ECB’s monetary stance is now very bullish with the possibility of 3 hikes (or a 75 basis point increase) throughout the year now being priced in.

USD

The dollar appeared to at least slow down the depreciation shown by the recent weakness inherited from the current problems in the Middle East. The spike in oil prices and the added inflationary pressures brought by this have been clear factors in the recent dollar sell off. Expectations of a strong payrolls data today saw the dollar gain 0.5% against the pound, whilst limiting the euro’s gains to 0.5% on the day.

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Written by Tom Tong

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