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Posted December 22nd, 2010 by Charles Purdy

EUR/GBP Rate & Comments for 22nd December 2010

EURO/GBP - 1.1771

Sterling hit a 3 month low against the US dollar yesterday as public borrowing figures came in far worse than expected and called into question whether the government can meet its deficit cutting target. Net borrowing by the government was at a record £22.8bn for November – up on last year’s £16.7bn and way above forecasts of £17bn. The Treasury maintained that the UK was on track to eliminate the budget deficit over the next four years, but sterling dropped to $1.5450/£1 – the lowest since September – as traders and investors questioned whether the government would achieve this target. Out today, we have the Bank of England’s meeting minutes and final GDP figures. Given the woeful borrowing figures, any changes to the Bank’s rhetoric could see some serious movement, so make sure you speak to one of the team now to avoid losing out.

In the eurozone, despite an initial surge against the US dollar after positive comments from China saw traders move to minimise losses, the euro fell against the US dollar yesterday as debt crisis concerns persisted. Credit rating agency Moody’s warned that it may downgrade debt-stricken Portugal’s rating in a review that could take 3 months. Spain sold nearly €4bn of bonds without too much hassle, but the dark cloud of the debt crisis is hanging over the region and is likely to last well into next year. Unfortunately, given the exposure of many UK banks this will not have the positive impact on the sterling/ euro price that many would expect so make sure you assess next year’s budgeted exchange rates sooner rather than later.

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