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Posted May 18th, 2010 by Charles Purdy

EUR/GBP Rate & Comments for 18th May 2010

EUR/GBP – 1.167

The pound suffered yesterday as concerns over the UK’s escalating deficit saw sterling hit a 13 month low of $1.4250/ £1 against the US dollar and slip against the euro. With many investors shying away from highly indebted countries, many analysts expect the downward trend against the US dollar to continue. With no real data released today, the big news was the announcement by the Chancellor George Osborne that the government will create a new independent watchdog to monitor the budget and economic forecasting. In a move similar to Labour’s creation of an independent interest rate setting body early into their first term in 1997, the new Chancellor is looking to ensure that he and his new government are held to account on cutting the deficit. He also announced that the first budget would be announced on June 22nd. With the government committed to delivering £6bn worth of spending cuts in the next year, the markets will be waiting to see exactly where the cuts will come from. Whilst the City is keen on the tough stance on spending, there are concerns that an overly aggressive round of cuts will stifle the UK’s fragile growth. With poor house price figures out yesterday morning, the Chancellor has a lot to prove. Inflation data out later today could cause some movement and many expect the pound to suffer in the run up to the budget. Call in now for a live exchange rate.

In the Euro zone, the single currency had a torrid day slipping to a 4 year low against the US dollar as the markets remained sceptical that the IMF bailout will be enough to stop the wave of risk and poor sentiment towards the region. With Greece expecting the first 14.5bn instalment today, a European Central Bank board member was keen to stress that nobody was questioning the euro in an interview on Austrian radio. With so many European officials seemingly desperate to keep faith in the euro, this may cause a stumbling block in future if the single currency does come into question. Out today we have German economic sentiment and European inflation data. This could see further volatility if it underperforms. Call in now for a live exchange rate.

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