Sterling drops against euro as risk appetite improves

Published: 05 December, 2011

Sterling dropped off against the euro on Friday after better than expected employment figures in the USA gave a boost to global risk appetite.

Currency rates - December 5

EURO/GBP - 1.1632

US$/GBP - 1.5651

CHF/GBP - 1.4396

CAN$/GBP - 1.5907
AUS$/GBP - 1.5326
ZAR/GBP - 12.5180
JPY/GBP - 121.95
HKD/GBP - 12.1621

NZD/GBP - 2.0028

SEK/GBP - 10.5348

AED/GBP - 5.748

US$/EURO - 1.3441

Sterling held its ground against the euro but did look vulnerable given the gloomy outlook in the UK. In terms of data, there are key figures released this week in the form of services PMI data which will give an idea as to activity in the sector. Many analysts expect this figure to fall marginally and given the large proportion services activity plays in GDP, a low number could significantly impact 4th quarter growth.

In the euro zone, markets are still concerned over the debt crisis in the region and the euro weakened on Friday following talk of a potential downgrade to Spain's credit rating. Over the weekend, new Italian leader Mario Monti's cabinet approved austerity measures totalling €30bn and the package is set to be presented to Parliament today in an attempt to cut the country's deficit after borrowing costs have topped 7% in recent weeks. It is a big week of events, with the European Central Bank's interest rate decision on Thursday and the conclusion to the EU Summit on Friday.

In the USA, US data continues to impress the markets and Friday was no exception. Although non-farm payroll data came in less than expected, it still increased on last month and there was also a decline in the rate of unemployment, falling to 8.6% from 9.0% in the previous month. The US dollar is very closely correlated to the level of market sentiment and risk. Given the EU Summit on Friday, expect the US dollar to be fairly volatile this week.

Elsewhere, the Australian dollar fell overnight on speculation that the Reserve Bank of Australia will cut interest rates as the European debt crisis impacts global growth. In contrast, the Canadian dollar continues to strengthen and is turning into a new safe haven for investors. The currency benefits from a lack of budget deficits and political stability, both of which are lacking in most other major currencies.

Supplied by Nick Ryder of Smart Currency Exchange, the currency partner to Harpers Wine and Spirit who have teamed up with Smart to provide readers with a free bespoke currency service. Go to www.smartcurrencybusiness.com/winespirit for more information or call on 0207 898 0500.

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