EUR/GBP Rate & Comments for 21st May 2010

EUR/GBP - 1.153

Sterling recovered from yesterday’s 14 month low against the US dollar as investors unwound ‘short’ positions in the pound as fears over European regulation hit investor confidence. German chancellor Angela Merkel’s banned ‘naked short’ selling of national debt – i.e. selling an asset you don’t have, moving the market down and then buying back at a profit. This feels like a very desperate attempt to preserve the euro, and banning naked short selling is not necessarily the best option – a ban on short selling bank shares in 2008 did not prevent those shares tumbling. The UK has suffered since the election as many feel the aggressive spending cuts promised by the government will hurt growth. There are several pieces of data out today. Public sector net borrowing, business investment and mortgage approvals could all cause significant volatility as sentiment towards the UK suffers. The pound has now fallen 11% against the US dollar in the last year – the worst performer of all the major currencies. Call in now for a live price.

In the Euro zone, following the 750bn bailout agreed the other week, there is a key vote today in the German parliament today to ratify using German funds to help Greece. The bailout is deeply unpopular amongst German voters and it poses a dilemma for the German government. Germany was a key player in the creation of the euro and the collapse of the currency would cause the country to lose face as Europe’s big player. Out today, German GDP for the 1st Quarter was confirmed at 0.2% (no change on the estimate). This had very little effect on sentiment – get in touch now as there is a lot of panic in the markets.

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