Sterling continues to gain due to euro zone debt

Published: 07 December, 2010

Sterling gained against a broadly weaker euro yesterday as investors focused on euro zone debt woes with a meeting of European finance ministers taking place throughout the day.

Daily currency rates

EURO/GBP - 1.1803

US$/GBP - 1.5769
CHF/GBP - 1.5416
CAN$/GBP - 1.5826
AUS$/GBP - 1.5887
ZAR/GBP - 10.8535
JPY/GBP - 130.36
HKD/GBP - 12.25
NZD/GBP - 2.06
SEK/GBP - 10.74
US$/EURO - 1.3359

With sterling taking a back foot ahead of another meeting later today, in which ministers are expected to formally approve the Irish bailout plan, many analysts expect to see sterling take advantage of the poor euro sentiment. In the UK, the key event of the week is the Bank of England's interest rate decision - announced on Thursday. The central Bank is not expected to make any changes to policy, and so investors are looking to industrial, trade and producer prices for direction on the UK economy this week. Out later today, we have manufacturing production data and (potentially) a GDP estimate for the last 3 months.

In the Euro zone, there was significant pressure on European finance ministers to increase the size of the EUR750bn emergency fund in order to avert a full blown debt crisis in the region. A report by the International Monetary Fund stated that there should be a larger emergency rescue fund in place to help future members that get into trouble. A measure of investor confidence in the Euro zone fell to 9.7 from 14. This was a far worse result than was expected, giving an idea of how much fear there is when it comes to investing in the Euro zone.

In the USA, the US dollar strengthened by 1.14% against the euro as fears over the debt crisis in the region saw investors by US dollars over the single currency. This came despite negative comments made by Federal Reserve chairman Ben Bernanke which could have had the opposite effect. In an interview on CBS-TV's "60 minutes" late on Sunday night, the Fed chairman stated that it was possible that US policy makers could increase the amount of Quantitative Easing being pumped into the economy, despite adding an additional $600bn in the last meeting of the Federal Reserve.

Elsewhere, the Dutch finance minister Jan Kees de Jager warned in an interview on Sunday that the markets would turn to other heavily indebted countries once focus moved from the Euro zone. He felt confused that countries such as Japan and the USA had similar if not worse problems than the Euro zone. An interesting stance. Watch this space to see what happens next.

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