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Sterling gains against US dollar but is hampered against euro

Published:  20 July, 2011

A stock market recovery helped sterling gained against the US dollar on Tuesday.

A stock market recovery helped sterling gained against the US dollar on Tuesday.

Currency rates & Comments - July 20

EURO/GBP - 1.1339
- 1.6072
- 1.3219
- 1.5253
- 1.4971
- 11.121
- 126.90
- 12.526
- 1.8790
- 10.403
- 1.4175

But the pound's progress against the euro was hampered by the UK's exposure to the European debt crisis. UK banks have exposure totalling several billion Euros, and investors are concerned over the impact of an escalation of the crisis on the UK. The UK's close trade links with Europe are also a concern for many - any default in the region could have a substantial knock on effect on UK growth. Sterling could come under pressure as the Bank is expected to reaffirm that interest rates will stay on hold for some time. 

In the euro zone, the euro strengthened yesterday as debt yields of some peripheral euro zone countries eased back ahead of an EU summit later this week. Investors are upbeat that a solution to Greece's debt problem may be reached at the summit. This came after a turbulent day on bond markets on Monday as Italy suspended trading in its bonds as yields hit record levels. In addition, the ECB has strayed from its hard line stance on default, with the Austrian central bank governor suggesting that a 'selective default' may be allowed. 

In the USA, the US dollar slipped yesterday as investors unraveled the ultra-safe US dollar holdings that they put themselves into on Monday. Strong US housing data helped to boost risk appetite, with new home starts rising to a six month high in June, a jump of 14.6% on the previous month. Many analysts expect the euro/ US dollar rate to be kept in a range as markets balance the European debt crisis on the one hand with the US debt ceiling deadlock on the other. 

Elsewhere, the Canadian dollar hit the highest level in 11 weeks after the Bank of Canada kept its main interest rate unchanged and said borrowing costs will increase as the economy recovers. A rebound in global stock markets yesterday saw increased demand for riskier assets and commodity based currencies such as the Canadian dollar followed rebounding oil prices upwards.

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.