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Posted January 19th, 2011 by Charles Purdy

EUR/GBP Rate & Comments for 19th January 2011

EURO/GBP - 1.1901

Sterling surged to an 8 week high of $1.6060/£1 against the US dollar and came within touching distance of €1.20/£1 yesterday after December’s Consumer Price Inflation (CPI) data came in much higher than was initially expected. Higher oil prices drove CPI to an 8-month high of 3.7% analysts expecting around 3.3%. This yet again boosted calls for an interest rate hike and as such saw sterling strengthen across the board as financial markets anticipated moves to tighten monetary policy as early as May. The Bank of England is walking a very thin line and is anxious to avoid stifling the fragile growth we are seeing with interest rate hikes. Financial markets can get a little carried away at the first sign of big shifts in policy, and as such it is important to recognise that the Bank of England will take some time to decide on the next steps. The next major focus is on the minutes from last week’s meeting – released next week. It will give a key insight into the current thoughts of the policymakers, so call in now for a live exchange rate.

In the euro zone, the euro continued to post large gains against the US dollar after a huge jump in economic sentiment data from last month’s reading. The German ZEW economic sentiment indicator gives an idea of confidence in the region and it shot up from 4.3 to 15.4 and as a result saw the euro hit a daily high of $1.3465/€1. Heavy buying of euros by accounts in the Middle East and rumours that Russia was considering buying Spanish bonds again also helped boost the currency, but it failed to capitalise after European finance ministers agreed to delay strengthening the region’s rescue fund. Out today, there is current account data for the region, so call in now for a live exchange rate as there is a lot of volatility.

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