Sterling drops to 15 month low against euro

Published: 01 July, 2011

Sterling fell to the lowest level against the euro for 15 months as investors betted that UK interest rates will stay low in the near term.

Currency rates - June 29

This week - (Last week)
EURO/GBP 1.1039 - (EURO/GBP 1.1227)
US$/GBP 1.6014 - (US$/GBP 1.5970)
CHF/GBP 1.3564 - (CHF/GBP 1.3381)
CAN$/GBP 1.5433 - (CAN$/GBP 1.5657)
AUS$/GBP 1.4961 - (AUS$/GBP 1.5182)
ZAR/GBP 10.835 - (ZAR/GBP 10.0975)
JPY/GBP 129.26 - (JPY/GBP 129.16)
HKD/GBP 12.462 - (HKD/GBP 12.507)
NZD/GBP 1.9389 - (NZD/GBP 1.9652)
SEK/GBP 10.093 - (SEK/GBP 10.298)
AED/GBP 5.9068 - (AED/GBP 5.8696)
US$/EURO 1.4511 - (US$/EURO 1.4209)

It capped a poor week for the pound, which struggled across the board after investors pushed back expectations for interest rate hikes to at least the middle of next year. UK year on year GDP figures were revised downwards this week and Thursday saw UK consumer confidence and mortgage demand drop, further denting the UK recovery's prospects. Sterling is being damaged against both the US dollar and euro - despite the ongoing debt saga in Greece.

At the end of a turbulent week for the euro zone, the euro gained towards the end of the week as the Greek parliament approved a series of austerity measures to cut the country's monumental deficit. A short term default has been avoided which saw investors regain (some) confidence.

In the USA, it was a relatively positive week for data with a surprising boost from housing data that showed pending home sales rebounding from -11.3% to hit 8.3% last month. In addition, US jobless claims fell by 1,000 to 428,000 in the week ended June 25. One concern this week was the USA's national debt that reached a self imposed $14.2 trillion ceiling. Congress must approve an increase in this ceiling over the coming month or face the daunting prospect of defaulting on an interest payment.

Elsewhere, the South African rand rose against the dollar for a fourth day as chances of a default by Greece subsided, boosting demand for riskier assets. Bonds gained as credit and inflation data spurred bets rates won't rise this year. The New Zealand dollar also gained as business confidence and home-building improved.

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