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Posted May 28th, 2015 by Charles Purdy

The euro comes out on top for the first time in months

Since last month’s general election, sterling had in general been performing very well – despite the announcement of negative inflation a little under a fortnight later.

Along with clear election outcome of a majority Conservative government, sterling had benefitted from the ongoing issues surrounding the Greek debt rescheduling – returning to the eight year high seen before election scaremongering set in – a rate that had not previously been since 2008.

However, with positive sentiment now coming from the Eurozone – both in terms of the Greece talks and the beginnings of growth in the biggest European economies – sterling has taken a significant fall against the multi-national currency in only a matter of days; this was compounded by the UK export figures, which were detrimentally affected by the slow European economic recovery.

The situation for sterling against the dollar has been almost the opposite. While the British currency also experienced growth here in the immediate aftermath of the general election, the US data releases in recent weeks have been, in the main more positive – leading to the dollar rising in value. This week, however, the American currency has had an about turn, thanks to mixed reports from the country – including the news from the Federal Reserve that the currency is likely to continue to slow down in the second half of 2015.

It is difficult to know how sterling’s situation against both these major currency pairs will continue in the weeks and months – and with speculation now beginning to mount for the UK around the EU referendum and how likely an exit from the EU really is, there is a possibility that this could have further negative effect on sterling in the short AND long-term (depending on how discussions go, and how publicised these are). In recent months, we have already seen (twice) just how political situations will affect sterling – firstly with the Scotland Referendum, and secondly with the general election when the possibility of a hung parliament was generally considered certain.

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