EUR/GBP Rate & Comments for 10th May 2010

EUR/GBP - 1.143

After a turbulent week for the pound last week, and the most closely fought election for nearly forty years, we are still in store for a turbulent week on the foreign exchange markets. Sterling recovered marginally from Friday morning’s lows against the US dollar as David Cameron and Nick Clegg discussed the possibility of working together in a Liberal/ Conservative coalition. With discussions taking place over the weekend, the markets are awaiting clarity as to what the outcome will be. However, with both parties clear that a major priority is clearing the deficit, we should see sterling recover on the announcement of any power sharing deal. At the same time, if talks fail, we will see another fall in sentiment towards the pound. Despite political factors taking centre stage this week, there is a lot of fundamental data out too. Today we have the Bank of England’s interest rate decision (postponed from last week following the election). It is widely expected that the Bank will keep rates on hold at 0.5% and keep the emergency funding on hold at £200bn. Also, we have retail sales data for the UK. Call in now to avoid the market moving against you.

In the Euro zone, following panic last week over the risk of sovereign debt ‘contagion’, the big news this morning is the announcement of a 500bn comprehensive package to avoid the Greek crisis spreading. The package takes the form of loan guarantees and the European Central Bank pledged to conduct ‘interventions’ in public and private debt markets to ensure ‘depth and liquidity’. This is to all intents and purposes the same as the quantitative easing programme that the US, UK and Japan put in place in 2008. This announcement has seen the return of (some) confidence in the Euro zone and as a result, the euro has jumped back over 1.30/ $1 and has strengthened by 1.5% against sterling. Despite this, UBS and Barclays Capital investment banks both see the euro hitting a ‘fair value’ of 1.20/ $1 in the next few months. Get in touch now to make sure you are protected from these movements.

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