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Posted August 12th, 2010 by Charles Purdy

EUR/GBP Rate & Comments for 12th August 2010

EUR/GBP – 1.215

Sterling dropped by nearly 1% against the US dollar yesterday after the Bank of England’s quarterly inflation report said that inflation would drop below the 2% target level in the next 2 years. In addition the Bank left the door wide open for further emergency funding or ‘Quantitative Easing’. The Bank also slashed growth forecasts on the grounds that there is significant uncertainty ahead for the UK, European and US economies. With markets pricing in increased inflation following next year’s VAT hike to 20%, a downward revision came as a bit of shock to many investors and set the pound on track for the biggest daily drop against the US dollar since the election. The economic prospects for the UK were described as “highly uncertain” and as such further emergency funding could be used if needed. There is hardly any data out today, and as such expect the pound to underperform against the US dollar as a result of continued poor sentiment. Get in touch now for a live exchange rate.

In the Eurozone, the euro dropped by over 1% sterling and over 2% against the US dollar as investors pulled back from riskier investments after the US Federal reserve announced a further round of quantitative easing. The move sparked investors in European assets to pull back as concerns over growth left them fleeing towards safer currencies. Sentiment towards the pound is better than the euro and as such, despite a poor assessment from the Bank of England, sterling strengthened by over 1% to hit a high of 1.2160/£1. Out tomorrow, there is the European Central Bank monthly bulletin and monthly industrial production data.

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