Pound rises against euro as debt crisis fears return

Tom Tong09/Mar/2011Currency Updates

GBP

Sterling fell against a resurgent US dollar during Tuesday trading as investors unwound long positions, although the pound made slight improvements against the euro as sovereign debt worries put the single currency under pressure. The pound was able to benefit slightly as a report showed UK shop prices rose at their fastest annual rate for two years, which is signalling increasing price pressures ahead of Thursday’s Bank of England rate decision.

Investors’ attention will now turn to the Bank of England’s MPC meeting which starts today. Rates look likely to stay at 0.5%. However, the split of hawkish and Bearish MPC members could make for a heated debate. Sterling has so far gained 3.6% against the US dollar this year alone amid speculation of interest rate hikes in order to tackle the 4% inflation brought on by rising food and fuel prices.

EUR

The euro fell against the pound and dollar during Tuesday as the markets focus shifts towards this week’s key EU summit to further tackle the Eurozone debt crisis. The Eurozone’s debt woes resurfaced Monday after Moody’s slashed Greece’s credit rating by three notches from Ba1 to B1 and warned it could be downgraded further given the risks to the country’s stabilisation efforts.

The euro’s recent rally against a basket of currencies has been brought about by expectations the ECB will raise interest rates as early as April. Expectations that the  European Central Bank will raise interest rates ahead of the Bank of England are, however, likely to offer the euro support against the pound in the short term.

USD

The US dollar rose against most of the major currencies during Tuesday, largely helped by a retreat in oil prices. Lower oil prices have a tendency to help the greenback as it reduces US crude oil imports.

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Written by Tom Tong

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