EUR/GBP Rate & Comments for 26th May 2010

EUR/GBP - 1.168

Sterling fell by 1% yesterday against the US dollar as investors continued to suffer from risk aversion. At one point the pound hit $1.4250/ £1 but recovered slightly towards the end of the day. Sterling performed well against the euro, breaching 1.17/ £1 before falling off the day’s high. The reason for sterling’s fall against the US dollar was that stock markets plummeted yesterday as concerns mounted over the Spanish financial system. In addition, mounting tensions between North Korea and South Korea caused markets to panic as news came through that the North Korean military had been mobilised and ordered to attack if fired upon by the South. In terms of data, the UK’s 1st Quarter GDP was revised upwards to 0.3% which was as expected and had little effect on the markets. Out today we have mortgage approval data for the UK, which is unlikely to have a huge effect on sterling. Call in now for a price, as sentiment is the key driver of currencies at the moment and could see the price move either way.

In the Euro zone, the takeover of the CajaSur bank by the Spanish central bank has triggered a new wave of risk aversion. Many analysts in the region predict that there will be further bank rescues later in the year and this news pushed up intrabank lending costs and fuelled demand for the US dollar. The euro fell to 1.2230/ $1 – within a cent of last week’s 4 year low of 1.2143/ $1. So far today we have seen German consumer confidence data fall this month and French consumer spending fall by 1.2%. Get in touch now if you are holding euros and need to exchange them, as many analysts are forecasting further euro weakness especially against the US$.

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