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Posted March 22nd, 2013 by Charles Purdy

Sterling benefits from Cyprus uncertainty | Smart Daily Currency Note

GBP/EUR – 1.1758 

Sterling has had a good week and for the second week in a row it is at a higher level against the euro and the US dollar than it was at the start. It made gains against the majority of its major counterparts including reaching a five week high of 1.1775 against the euro and a one month high of 1.52 against the US dollar. On a very busy week for the UK, we saw the latest Monetary Policy Committee (MPC) meeting minutes reveal that there was no change in the number of members voting for an increase in quantitative easing which helped sterling as there were murmurs that another member may have voted in favour. George Osborne’s relatively neutral budget did include some reforms which pleased the market such as the 1% cut to corporation tax, as well as national insurance relief for small businesses; however, this was marred by the Office for Budgetary Responsibility released some daunting figures showing national debt continuing to rise until 2018 and will reach 85% of GDP. The budget also included a new remit for the Bank of England saying that the 2% inflation target is “necessary but not sufficient”, and that Mark Carney’s bank should be able to focus on growth as well as inflation, much as the American Federal Reserve does. Yesterday saw another lift for sterling as retails sales figures came out much better than forecast showing a sharp rise to 2.1% compared to the 0.6% forecast, and the first month of positive growth in the sector since October. Moreover, we also saw better than expected public finances figures which must have pleased the Chancellor! There is very little expected to be released from the UK today; but, with the situation in Cyprus far from resolved, it is still likely to be an interesting day for sterling. Get in touch for the latest rates.

News and speculation surrounding the Cypriot bailout have had a significant negative impact on the euro this week. Despite a reasonable performance on Wednesday due to hopes that an agreement with the ECB might be reached, this week has seen the euro lose considerable ground against the majority of its major peers. It was traded at almost its lowest rate in four months against the US dollar as it hovered around the 1.29 level. The 17-nation currency was hampered further by worse than expected manufacturing and services data coming from France and Germany. Whilst Cyprus accounts for only half a per cent of the Eurozone’s economic activity the uncertainty surrounding its future does not bode well for the single currency. The ECB have given Cyprus until Monday to raise the capital required for the bailout agreement, whilst there have also been rumours surrounding possible financial aid from Russia. Today sees the release of the usually influential Institute for Economic Research German survey, but equally any updates from Cyprus could also have a big impact on the strength of the euro. Call in now for live rates and up to date information.

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