EUR/GBP Rate & Comments for 28th May 2010

EUR/GBP - 1.175

Its all about risk at the moment and whether you are risk adverse or you have risk appetite. Last week was definitely a week where risk aversion was to the fore and the US$ given its safe haven status in the ascendancy. The second half of this week has seen risk appetite return. The result of this was that we have seen sterling appreciate even though the economic data has been less than supportive for sterling. Yesterday we had retail sales for May released which were below expectations and the poorest for a while. Bad weather was given as the reason but you are left to wonder if there is a different underlying problem. So even though we hit 1.18 interbank yesterday there is no conviction that sterling will keep on going or suddenly go into fast reverse. Volatility continues to high, movements somewhat random and when they happen quick and large so that is why it is so important to get in touch now.

The euro benefitted from both the Chinese and the South Koreans saying that they still viewed the euro as a key constituent in their foreign currency reserves. This was good news as the markets were worried about a change in tack. To be honest what choice do they have? The US$ may be viewed as a safe haven asset but when you have so many of them the last thing you probably want is more of them. So debt problems continue to loom large in the euro zone and these problems are not going to go away for quite a while.

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