Sterling and the single currency rally despite continued Euro woes

Tom Tong07/Feb/2012Currency Updates

GBP

Sterling is likely to remain relatively stable over this week with only one figure or announcement of note due. That is Thursday’s Bank of England interest rate decision which is expected to reveal no change from the current 0.5%.

A recent run of positive UK economic data gave some support to sterling, though dealers said it was unlikely to dissuade the Bank of England from announcing an increase in the asset purchase programme, also on Thursday. In the meantime, events in the Euro continue to drive currency movements.

Sterling rose against the euro but slipped against the dollar on Monday, due to heightening anxiety over the Euro debt crisis. Sterling was down around 0.2 per cent versus the dollar. There is no major data for the UK today.

EUR

Angela Merkel told Greece on Monday to make up its mind fast on accepting the terms for a new EU/IMF bailout, but the country’s political leaders responded by delaying their decision for yet another day.

Failure to strike a deal to secure the 130 billion euro rescue risks pushing Athens into a chaotic debt default, which could threaten its future in the euro zone. Speaking in Paris, Merkel expressed the exasperation spreading among euro zone leaders at seemingly endless arguing in Athens that has yet to produce a decision The Greek government appeared to need at least one additional day, prolonging fears that a default would hit much larger economies such as Spain and Italy.

This will be the main factor in determining where the currencies move over this week. If the news is positive with a major cut taken by the private investors, Euro strengthening is likely as the chances of a Greek default will fall away. On the other hand, no news or a negative result will lead to another surge of Euro weakness.

Yesterday, the euro was down around 0.4 percent on the day against the Pound and hit a low of $1.3026 – losing more than 0.5% against the Dollar.

USD

The dollar rose following last week’s positive data from the US and a more cautious mood on the outlook for Europe. The US currency increased its gains against the Euro and the Pound.

Today US economic data that is scheduled for releaseis: At 3:00 pm GMT Ben Bernanke from the Fed is scheduled to testify in front of the Federal Budget Committee in Washington, which will be shown at the same time the IBD/TIPP economic optimism data is released.

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Written by Tom Tong

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