Euro takes a battering as inflationary pressures diminish in the UK

Tom Tong14/Dec/2011Currency Updates

GBP

Sterling benefitting from the markets skittish reaction to the latest damp squib of a euro summit. The pound reached a 9 and a half month high against the Euro as investors fled the single currency and moved into the dollar, pound and Scandi currencies. The CPI inflation figure was down in the UK to 4.8% highlighting a slowing in the rise of the cost of goods in the UK.

Despite Britain’s feeling the pinch from a period of high inflation and low growth, AIC figures revealed that households in Britain enjoyed on average the highest standard of living in the Eurozone. Elsewhere, a Ugov poll revealed that the Conservatives had over taken Labour in the opinion polls for the first time this year, with Cameron’s decision to wield his veto in Europe proving popular with the public and backbenchers. This bodes well for Chancellor Osborne having the political platform to implement the required austerity measures for the UK to retain its strong sovereign rating.

EUR

The euro fell to a fresh nine-month low against sterling on Tuesday after comments by German Chancellor Angela Merkel unsettled investors who where already disappointed by the outcome of last week’s European Union summit. The euro also plunged to a 11 month low against the Dollar. The Japanese government cast a dim shadow over the latest EU summit by stating that they will not contribute any further to the IMF fund as they felt the progress made at the summit was insufficient. The European bond market still remains under pressure despite a successful auction of Italian debt yesterday, as by the end of the day Spanish and Italian yields where on the rise. The beleaguered Eurozone was given another blow as Greece’s largest lender, The National Bank, sought bailout funds. Also, jobless figures in Europe rose again in October with Eurozone unemployment pushing up another 0.2%.

USD

Given the problems in the Eurozone, it looks as if the dollar could post further gains as we head through December and into 2012. The Dollar gained against other major rivals as the US federal reserve decided to keep interest rates in check, nor did they hint that it could be considering more stimulus measures. The euro extended losses against the dollar on Tuesday as U.S. stocks and bond yields fell further after the Federal Reserve said the economy is expanding moderately but the unemployment rate will only decline gradually. These inroads against the European single currency came as news that German Chancellor Angela Merkel rejected any increase in the European Union bailout fund and this outweighed a less negative German December Zew survey and successful Spanish bond auction.

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Written by Tom Tong

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