Sterling-Euro currency pairing

Over the past week we have seen a steady decline for the Sterling-Euro currency pairing. With the bearish sentiment expressed towards the pound, Euro prices fell 1.6% over the week to a low of 1.1928 from previous highs just pushing over 1.21. Sterling began to slip on Monday after a weaker than expected reading of the UK services sector highlighted the fragility of the country’s economic recovery and thus prompted investors to take their profits from the pound’s rally over the last few weeks. With an increase in the supply of sterling on the currency market, prices naturally began to fall.

With few news releases holding much impact for the currency pairing this week until Thursday, the ongoing situation for BP as well as the aforementioned profit booking eroded the previously seen sterling strength, although at a pace subdued by weak GDP growth figures in Europe.

Financial talk within the UK recently has focused on the possibility of a ‘double-dip’ recession and the impact it would have.  Whilst the risk of Britain sinking back into a period of declining economic growth has grown in recent months, a 12-strong team of respected economists and business leaders on the Sky News Money Panel unanimously made the call that the UK would avoid a double dip. They confidently and correctly asserted the Bank of England would make no monetary policy changes following the July interest rate meeting. The same was true of the ECB who held European interest rates at 1%.

Economists said that the BoE was walking a tightrope between nervousness over rising inflation and growing concern about the impact of last month’s austerity budget on the struggling economy.

“The stickiness of UK inflation remains a concern but ‘lower for longer’ is likely to remain the theme when it comes to interest rates,” said Stephen Boyle, head of economics at Royal Bank of Scotland. Inflation is expected to climb even higher after the government ramped up VAT to 20% from 17.5%, set for introduction in January 2011.

It was because of this inflationary pressure that we saw dissent from policymaker Andrew Sentance at June’s MPC meeting. Expect to see more rumour and unrest within the MPC over the course of the year as pressure on inflation continues.

Sterling has rallied in the past month in the wake of a general election in May and the new coalition government’s budget announcement, this rally has however now started to wain due the possible impact of tax rises and spending cuts on the overall economy.

The trends displayed this past week demonstrate the worth of staying up to date in order to maximise your currency purchase potential. By contacting your account executive here at the Foremost Currency Group for a free consultation, we can help you to optimise that purchase. For example, buying €200,000 this past week on Friday instead of Monday would have meant a loss of over £2400. We can help you to avoid losses by giving you relevant economic information and opinion on trends within the currency market.

For the week starting 12th July, we see a whole host of data releases in the UK; GDP figures on Monday and the claimant count on Wednesday holding the most potential for placing pressure on sterling. Whilst in Europe, the German economic sentiment survey on Tuesday and inflation figures on Wednesday hold the most gravity.

For more information on how upcoming data releases may affect your currency, see the below for a concise round-up of volatile market moves or call in for consultation with your Account Manager here at the Foremost Currency Group. We keep abreast of key announcements from prominent government figures both here and in Europe, helping us to help you maximise your Sterling/Euro currency potential.