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Posted January 21st, 2011 by Charles Purdy

EUR/GBP Rate & Comments for 21st January 2011

EURO/GBP - 1.1745

Sterling has struggled yesterday as a survey by the Confederation of British Industry unexpectedly showed that orders dropped in January. Wednesday’s unemployment figures showed that 2.5m people are out of work (the highest since last spring) and the number of 16-24 yr olds out of work is at a record high of 951,000. The CBI data and less than rosy employment figures contrast with Tuesday’s higher than expected inflation figures and adds to the dilemma that the Bank of England faces regarding monetary policy. Inflation is stubbornly high and any interest rate hikes to curb this could stifle the economic recovery. Sterling will be held back if unemployment and other fundamental figures continue to disappoint. Either way, I don’t think we will see any change from the BoE on interest rates or monetary policy until Q3 at the earliest. Out today, we have key retail sales data and mortgage approval figures – both of which could further dent the fundamental outlook for the UK so call in now for a live exchange rate.  

In the euro zone, the euro strengthened by 0.5% against sterling after large ‘real money’ (i.e. non speculative) buying saw a significant market movement. Spain also came close to finalising plans for a second round of recapitalisation for the country’s troubled banks. This helped yields on Spanish bonds fall, essentially giving the country access to better borrowing rates. It is a quiet day for data releases, but the debt crisis remains top of the agenda for the markets – ensure you don’t lose out and speak to a member of the team sooner rather than later.

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