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Sterling reaches fresh highs after European election results

Sterling reached a three-and-a-half year high against the euro yesterday of 1.2440, as election results in Europe caused yet more uncertainty in the region.

Currency rates - May 8

EURO/GBP - 1.2412

US$/GBP - 1.6159

CHF/GBP - 1.4914

CAN$/GBP - 1.6072

AUS$/GBP - 1.5890

ZAR/GBP - 12.642

JPY/GBP - 129.062

HKD/GBP - 12.5402

NZD/GBP - 2.0391

SEK/GBP - 11.041

AED/GBP - 5.9342

US$/EURO - 1.3012

INR/GBP - 85.49

On Friday, the Halifax House Price Index (HPI) came in much worse than expected. Boris Johnson has secured a new term as Mayor of London; however, the Conservatives and Liberal Democrats suffered heavy losses in the local government elections with voters showing their disdain for the austerity measures the Coalition Government have implemented. The Bank of England's rate decision this week is expected to be another non-event with the market widely anticipating that the interest rate and the asset purchase facility will be kept unchanged.

The euro has suffered heavy losses as news of election results from Greece and France was absorbed by the market. The euro weakened to a three-and-a-half year low against sterling whilst retracing to a three-and-a-half month low against the US dollar. News from France that Hollande has become the new President, beating Sarkozy to become the first Socialist leader since 1981 shook the market as the Franco-German relationship at the centre of the Eurozone appears to be breaking down. In Greece, a mass exodus away from the two main parties due to the public's opposition to the austerity measures has caused yet more uncertainty for the troubled nation. Greece needs to outline a further 11.5 billion Euros of spending cuts if it is to receive the next tranche of its bailout package in June and unless a government is formed that will enforce these cuts Greece is destined to default. There is not a great deal of data out of Europe this week as the markets will look elsewhere for influence whilst continuing to absorb the news of election results.

In the US, the non-farm pay rolls data released on Friday came in much worse than expected mirroring the ADP non-farm payrolls data released earlier in the week. With the labour market no longer appearing to drive the US economic recovery, speculation is starting to gather pace that further Quantitative Easing could be implemented. A busy week on the data front includes trade balance data, unemployment claims, PPI data and economic sentiment. With a lot of data released this week and the economic woes of Europe driving the market these is the potential for a lot of volatility.

Elsewhere, the Reserve Bank of Australia downgraded its growth forecasts on Friday and the markets are anticipating the potential for a further interest rate cut in June beyond the 0.5% announced last week. Moreover, Swiss retail sales figures came in much better than expected and Canadian Purchasing Managers' Index (PMI) fell short of their predicted values on Friday. Australian building approval and retail sales figures beat expectations yesterday; but, trade balance figures, the annual budget release and unemployment data are also on the agenda this week. Canadian monthly building permits announced yesterday came in much better than expected, with trade balance figures and unemployment data released later in the week. Other data released this week includes Chinese trade balance, CPI and PPI data; the Reserve Bank of New Zealand's financial stability report and Japanese current account figures.

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