Sterling drops against euro due to Spanish bond auction

Published: 18 March, 2011

Sterling dropped to a four month low against the euro, but gained against the US dollar yesterday and overnight.

Currency rates

EURO/GBP - 1.1450

US$/GBP - 1.6126
CHF/GBP - 1.4552
CAN$/GBP - 1.5828
AUS$/GBP - 1.6245
ZAR/GBP - 11.3504
JPY/GBP - 131.68
HKD/GBP - 12.5796
NZD/GBP - 2.2164

SEK/GBP - 10.2786
US$/EURO - 1.4070

The main impetus in trading yesterday was a stronger than expected bond auction in Spain which set the tone for risk appetite. Overnight we have seen a large scale co-ordinated intervention in the currency markets by the G7 nations to weaken the Japanese yen and reduce volatility in the markets. The scale and decisiveness of this move saw the Japanese yen slump by nearly 4% and has helped risk appetite return. There is no real data out today - the focus is very much on global events right now.

In the euro zone, the euro hit the highest level against sterling since early November and gained to above $1.40/€1 against the US dollar on the stronger than expected bond auction in Spain and interest rate hike expectations. The expectation of an April rate hike by the European Central Bank has been scaled back in recent days from total certainty, but markets are still pricing in an 80% chance of an interest rate hike next month.

In the USA, the UN Security Council authorised military action against Libya last night hours after Libyan leader Muammar Gaddafi threatened to storm the rebel city of Benghazi showing "no mercy, no pity". Whilst a full scale invasion was not part of the resolution, a no-fly zone in Libyan airspace is expected to be enforced shortly. There is no real data today, but plenty happening to cause volatility.

Elsewhere, the Japanese yen gained by 4% overnight following a combined intervention by the Bank of England and other G7 nations helped boost risk sentiment overnight, underpinning 'riskier currencies' such as the euro and Australian dollar.

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