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Posted July 4th, 2011 by Charles Purdy

EUR/GBP Rate & Comments for 4th July 2011

EURO/GBP - 1.1085

Sterling had a poor end to last week, finishing at a 15 month low against the euro as poor manufacturing figures supported the view that the Bank of England would keep interest rates on hold well into next year. Manufacturing figures dropped to a 21 month low, with analysts expecting sterling to remain very sensitive to economic data given that the Bank of England raised the prospect of further quantitative easing if the UK recovery continues to falter. Interest rate expectations have plummeted since January, when markets expected a rate rise as early as April. This week we have a wide array of key data on activity in various sectors of the economy and the Bank of England’s monthly meeting. Whilst they are expected to make no changes, call in now for a live exchange rate to avoid any unexpected movements.
In the euro zone, at the end of an eventful week for the region, euro zone finance ministers approved the release of the next tranche of emergency loans to Greece on Saturday, helping Athens to avoid default until September. As a result, EU finance ministers have now pushed back a decision on a second bail out until then so expect to see peripheral debt take a back seat for the next few months and the focus return to interest rates. This week sees the ECB’s rate decision and ECB President Jean-Claude Trichet is widely expected to raise interest rates by another 0.25%. Debt seems to be off the table again for now, but expect significant uncertainty later in the year.

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