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Posted January 14th, 2011 by Charles Purdy

EUR/GBP Rate & Comments for 14th January 2011

EURO/GBP - 1.1777 

Sterling fell against a stronger euro yesterday, but hit a 1 month high against the US dollar helped by speculation that UK interest rates may rise sooner than expected and following weaker than expected US data. With the Bank of England keeping interest rates on hold at record lows of 0.5%, many feel that consistently high inflation will pressure the central bank to raise interest rates later this year. The minutes from yesterday’s meeting are due on January 26th and will be watched very closely for any sign of the Committee’s intent. Sterling fell against the euro after a strong Spanish bond auction and positive comments from ECB President Jean-Claude Trichet sparked investors to cover short positions by buying back euros that had been sold. Manufacturing data beat expectations, coming in at 0.6% against an expectation of 0.5%. In terms of data, there is key producer price inflation today which will give interesting insight into inflation for the rest of the year.
 
In the euro zone, the euro jumped 1% against the US dollar and sterling as ECB President Jean-Claude Trichet issued a warning about short term inflationary pressures in the region. A Spanish bond auction went far better than expected and helped ease concerns that Spain would join Ireland, Greece and possibly Portugal in the bail out club. Today there is European inflation data for the year so call in now for a live exchange rate.

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