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Posted May 13th, 2010 by Charles Purdy

EUR/GBP Rate & Comments for 13th May 2010

EUR/GBP – 1.174

After a strong start to the day following the formation of a new government, sterling fell against the US dollar and euro. The pound hit a low of $1.4821/ £1 after opening above $1.5040/ £1. Against the euro, sterling fell from a high of 1.1830/ £1 to finish the day around the 1.17/ £1 mark. The reversal in fortune was as a result of yesterdays Bank of England inflation report, which predicted that inflation is likely to undershoot the 2% target over the next 2 years with interest rates likely to remain at record lows of 0.5% as a result. The initial optimism that boosted the pound following the announcement of a new government faded following the report, as many traders realised that the UK has a hard road ahead of it to clear the deficit which is currently running at 11% of GDP. In addition, despite the unemployment claimant count falling by 27%, unemployment rose to the highest level since 1994. The optimism of the election is likely to fade further (as we saw in the USA following the election of Barack Obama) and as a result it would be worthwhile looking at making any payments now before the pound sinks any further. Out today we have trade balance data, which can occasionally cause large movements if it comes in better or worse than expected. Call in now for a live exchange rate.

In the Euro zone, industrial production rose by slightly more than expected and an initial estimate of 1st Quarter GDP came in at 0.2% against an expectation of 0.1%. This unexpected rise helped the euro strengthen against the pound. There is little data out today as France and Germany enjoy a bank holiday, but the markets are still nervous over the Greek situation and despite the 750bn bail out, there is still a high risk of a European country defaulting. Get in touch now, as despite the bleak outlook in the euro zone we could see the pound suffer in the next few weeks as the implications of the task ahead for the next government take effect.

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