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Investors pull out of euro into sterling

Published:  01 December, 2010

Sterling climbed against the euro yesterday as concerns over sovereign debt in the euro zone continued to hamper the single currency.

Sterling climbed against the euro yesterday as concerns over sovereign debt in the euro zone continued to hamper the single currency.

Currency Rates
EURO/GBP - 1.1951
US$/GBP - 1.5623
CHF/GBP - 1.5714
CAN$/GBP - 1.5961
AUS$/GBP - 1.6213
ZAR/GBP - 11.0146
JPY/GBP - 130.875
HKD/GBP - 12.1331
NZD/GBP - 2.0936
SEK/GBP - 10.9294
US$/EURO - 1.3066

As a result, sterling broke the €1.19/ £1 barrier for the first time in around 2 months. The risk aversion that saw investors pull out of the single currency and into sterling also saw sterling lose ground against the US dollar, with sterling dropping to $1.5480/£1 for a time before levelling out at the $1.5530/£1 mark. The sterling/ US dollar rate is a real indicator of investors' feelings towards risk and with Commerzbank forecasting a return to $1.52/£1 today in the short term, it is a far cry from the giddy heights of $1.6290/£1 that we saw on Bonfire night - just a few weeks ago.

In the Euro zone, the euro plummeted to 10 week lows against the US dollar yesterday as the Irish bail out failed to dampen speculation over the need for further rescue packages in the region. The single currency dropped below $1.30/ €1 for the first time since September as worries over 'contagion' hammered the euro zone debt markets. Spain, Italy and Belgium's cost of borrowing hit record highs yesterday, as many feared these countries would not be able to face their debt obligations. One analyst felt that this risk of default could spread to countries outside the euro zone as there are "no safe sovereign borrowers". In terms of data, there is German retail sales figures released today, but these are likely to be insignificant in the grand scheme of things.


In the USA, the US dollar continued to attract demand from risk adverse investors yesterday. The currency has been the 'safe haven' for those investors looking to avoid losses, with most buying US government bonds - traditionally one of the safest (but consequentially lowest yielding) investments globally. US data was positive yesterday, with consumer confidence and purchasing data both beating expectations.

Elsewhere, the Japanese Ministry of Finance confirmed that it did not intervene in the currency markets between October 28t and November 26. The Japanese government stepped in on September the 15 and sold $25bn worth of yen to bring the Japanese yen off 15 year highs against the US dollar and help make Japanese exports more competitive.

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