EUR/GBP Rate & Comments for 14th May 2010

EUR/GBP - 1.165

Sterling fell yesterday against the US dollar and euro as the UK’s trade balance widened by more than expected. In March, the UK imported £6.3bn more than it exported and in April this gap increased by more than £1bn to £7.5bn. Exports remained steady and imports jumped, which disappointed the markets. Sterling is weak compared to most major currencies and the fact that this has not encouraged foreign investment into the UK is worrying, but also shows that global demand as a whole is weak. The ongoing saga in Greece could be blamed for a lack of demand for UK goods, but this is likely to continue as the Euro zone looks to curb spending and avoid debt default. Mervyn King hinted that the UK would benefit if Germany injected funds into the economy to encourage spending and ultimately boost UK exports. Elsewhere, the new government sent a clear message of its intentions to cut spending by cutting their own pay by 5% - frozen for 5 years. Whilst this saves roughly £3m (a drop in the ocean compared with the deficit) it is a clear message to the markets. So far, financial markets have welcomed the new coalition. Unfortunately, the pound is in a poor position. If the Greek crisis spreads further, we will effectively lose demand from a major marketplace for UK exporters. Out today we have no real data for the UK, but the currency traders will keep a close eye on David Cameron as he continues to forge ahead with plans for a ‘New Britain’. Call in now for a live exchange rate.

In the Euro zone, Portugal announced tough ‘austerity’ measures including tax hikes and pay cuts for public sector workers. The measures follow yesterday’s announcement by Spain of similar cuts which were met an angry response and threats of public sector strikes. The tough measures are the price that needs to be paid for the 750bn bail out that was announced over the weekend. There was little data out yesterday, but the euro rose against sterling as sentiment improved towards the Euro zone with European stock markets up nearly 8% this week having recovered losses. There is no data out today, so expect more of the same – trading on sentiment. Call in now to get a live rate.

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