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Posted July 8th, 2011 by Charles Purdy

EUR/GBP Rate & Comments for 8th July 2011

EURO/GBP – 1.1132 

Sterling slipped against the US dollar and euro on Thursday after the Bank of England kept interest rates on hold at a record 0.5% and investors speculated that it might call on further Quantitative Easing to boost a faltering UK recovery. Manufacturing output rose 1.8% in May, after a 1.6% drop in April
Industrial output, but this did little to change overall market expectations that the Bank of England will leave interest rates at a record low 0.5 percent for some months to come. Market expectations suggest that interest rates will now stay on hold well into 2012, raising the prospect that sterling could be used as a “funding currency” in the same way as the Japanese yen – i.e. borrowed cheaply to invest in higher yielding currencies. This could see sterling plummet over the coming months, so call in now to protect yourself.

In the Euro zone, the European Central Bank increased interest rates by 0.25% as had widely been expected, taking base rates in the region to 1.5%. In addition, the euro gained against the US dollar after ECB President Jean-Claude Trichet eased collateral rules to help local Portuguese banks in the wake of a panic inducing credit rating downgrade earlier in the week. German industrial production came in higher than expected and today is a lighter day for data but call in to prevent any adverse market movements impacting on upcoming payments you may have.

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2 Responses to “EUR/GBP Rate & Comments for 8th July 2011”

  1. Bob Mills Says:

    We had an absolutely dismal US Non Farm Payroll figure earlier today. I would I have expected this to knock the stuffing out of Sterling….but the opposite happened……Who can explain this…..I am confused!!!

  2. Charles Purdy Says:

    There are so many factors at play it becomes very difficult to know how the market will react to different pieces of information. Although sterling is under pressure the problems in some ways are less daunting than the US and the Euro zone’s. The only thing I am clear on is that current market conditions make making forecasts for exchange rates very difficult if not a fools errand.

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