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Sterling rises due to lack of confidence in euro

Published:  18 July, 2011

Sterling rose to a six week high against the euro this morning, touching €1.1478/£1 due to lack of confidence in the euro.

Sterling rose to a six week high against the euro this morning, touching €1.1478/£1 due to lack of confidence in the euro.

Currency rates - July 18

EURO/GBP - 1.1459
- 1.6084
- 1.3095
- 1.5418
- 1.5154
- 11.170
- 127.09
- 12.536
- 1.9060
- 10.592
- 1.4038

Markets were squarely focused on the results of European bank 'stress tests' on Friday. Investors were not impressed with the results - mainly because they did not adequately address the issue on everybody's mind; that of sovereign default. Confidence fell and sterling made gains. With risk aversion and uncertainty prevalent in global markets, there are several key pieces of UK data this week that could see exchange rate volatility. Wednesday's MPC minutes will help investors to gauge UK monetary outlook. There are also public borrowing and retail sales figures released on Thursday.

In the euro zone, the sovereign debt crisis hit new depths last week with European Finance ministers failing to reach agreement yet again on a debt restructuring for Greece. Italy came under pressure last week too, with a run on the country's bonds leaving yields increasingly higher. Whilst only eight European banks failed the stress tests, investors felt that the tests did not go into sufficient depth to uncover relevant issues. This has seen the euro lose ground against its counterparts this morning. 

The focus in the USA is increasingly on the approaching debt ceiling deadline and the frustrating deadlock between lawmakers. Essentially, the USA has reached its overdraft limit and needs to do some cost cutting before it can borrow more money, but lawmakers are deadlocked over where the savings should come from. Ratings agencies S&P and Moody's have both warned that the USA's AAA credit rating is at serious risk and there is the looming prospect of a default on US government bonds. 

Elsewhere, expectations for an interest rate hike in Australia have been pushed back over the last few weeks and came under further pressure on Friday. However, the currency has remained particularly insensitive to this given the interrelationship with China and its import demands. 

Smart Currency Exchange is a currency partner to Harpers Wine and Spirit. Harpers Wine and Spirit has teamed up with Smart to provide readers with a free bespoke currency service.