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Sterling holds firm against the weakened euro

Published:  12 January, 2011

Sterling held firm above the €1.20/£1 level after jumping to a four month high in the last few days.

Sterling held firm above the €1.20/£1 level after jumping to a four month high in the last few days.


Currency rates

EURO/GBP - 1.2010

US$/GBP - 1.5655
- 1.5209
- 1.5462
- 1.5796
- 10.6921
- 129.988
- 12.1716
- 2.0572
- 10.6444
- 1.3026

Sterling held firm above the €1.20/£1 level after jumping to a four month high in the last few days. Sovereign debt concerns continued to punish the euro and expectations of an interest rate hike in the UK gave sterling a boost, despite a survey by the British Retail Consortium showing that sales dipped 0.3% in December on the same period in 2010. Euro weakness drove the price movement ahead of an important bond auction for Portugal which could see the country head to the IMF and EU if they struggle to raise enough funds. With Thursday's UK interest rate decision in focus, many analysts feel that the UK is set to see an interest rate hike much sooner than expected. However, there are commentators that feel a hike in response to market pressure could be too early and it could damage already fragile growth.

In the euro zone, the euro saw a brief respite from heavy selling after Japan pledged to buy euro zone bonds in an attempt to stabilise debt markets. However, the respite soon wore off and the single currency suffered ahead of a key bond auction tomorrow. Portugal is set to raise €1.25bn in an auction that will signal whether the country will be able to afford the interest demanded by investors or it will need to seek a bailout from the EU/ IMF. 

In the USA, the US dollar strengthened against the euro yesterday following the concerns over the euro zone debt auction tomorrow, with the euro hitting a low of $1.2905/£1. The US dollar was yet again buoyed by a strong stock market performance after above forecast earnings from Aluminium Company Alcoa led the index higher. This boosted expectations for the rest of the 4th Quarter earnings season. 

Elsewhere, a top US business group has said that the US should not push China for an immediate sharp change in the Chinese yuan exchange rate as this could be detrimental to both countries. The group argue that a gradual change in the exchange rate will help address global balances in the exchange rates.

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