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Sterling's gains hampered by euro zone debt worries

Published:  21 December, 2010

Sterling gained against the euro yesterday as the single currency was hampered by euro zone debt crisis worries.

Sterling gained against the euro yesterday as the single currency was hampered by euro zone debt crisis worries.

Smart currency daily rates

EURO/GBP - 1.1814

US$/GBP - 1.5543
- 1.4950
- 1.5797
- 1.5608
- 10.5990
- 130.082
- 12.0865
- 2.0831
- 10.5874
- 1.3152

But sterling's gains were limited to 0.3% as concerns over the UK's exposure to the crisis held the pound back. 

Overall price movement was limited as many investors stick to the sidelines until the first week of January and with the Bank of England reporting that UK banks will remain vulnerable to the European debt crisis into the new year, many traders are waiting until after the festive period to look at their options. Sterling vs euro is likely to suffer over fears of exposure, so it is one of the big issues to keep an eye on heading into 2011. The Confederation of British Industry cut its UK growth forecast for the first quarter of next year to 0.2%. It seems that sterling will have a tough start to the year.

In the eurozone, the single currency fell to all time lows against the Swiss franc and Australian dollar as investors worried about the debt crisis and further credit rating downgrades. To an extent, many investors are simply 'shutting up shop' for the next two weeks by moving their investments into safer currencies or assets such as gold or bonds. Gold crept higher for the second day running. In terms of data, the euro wasn't helped by consumer confidence and manufacturing inflation figures that both came in slightly lower than expected.

In the USA, it was a very quiet day for data releases and today is no different. Most movement has come from trading related to concerns over the eurozone debt. This saw the traditional 'flight to safety' with investors buying US dollars as a safe haven asset. In addition, with the S&P 500 stock market up 5% on the month, traders were hesitant to buy stocks ahead of a potential correction. Released today, there is potentially a report from the US Treasury on currency, which could see some movement.

Elsewhere, traders were watching the situation in North Korea closely after South Korea performed a live firing exercise over the weekend. Hints of retaliation added to nervous traders and helped strengthen the US dollar.

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