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Sterling falls due to optimism over bailout for Greece

Published:  06 June, 2011

Sterling ended last week by falling to a four week low against the euro on optimism over a new bailout for Greece.

Sterling ended last week by falling to a four week low against the euro on optimism over a new bailout for Greece.

Daily currency rates - June 6

- 1.6420
- 1.3707
- 1.6112
- 1.5283
- 10.991
- 131.58
- 12.772
- 2.0123
- 10.106
- 1.4621

Disappointing UK data provided further evidence that UK interest rates are likely to remain at record lows and this saw sterling drop - it starts the week hovering just above €1.12/£1. Against the US dollar, sterling should remain well supported above $1.60/£1 as it tracks euro strength against the US dollar. The key event for the UK this week is the Bank of England's meeting on Thursday. There is unlikely to be any change to monetary policy - especially given last week's poor PMI figures - and we will need to wait another two weeks before the minutes are released to see how the committee voted. 

In the euro zone, the euro remains close to a one month high against the US dollar and sterling after it was revealed that Greece is set to receive a vital tranche of aid in July to avoid a default and the country comes close to securing a new aid package. Despite there being no long term plan in place to deal with the euro zone crisis, the euro is expected to gain ahead of the ECB's interest rate meeting on Thursday. Investors expect Jean-Claude Trichet to signal "strong vigilance" on interest rates - effectively clearing the way for a July hike.

In the USA, disappointing jobs data on Friday saw confidence in the US recovery dented even further. Non-Farm payrolls showed that the US economy added 54,000 jobs last month against an expectation of 150,000. The US S&P 500 stock market finished 2.3% lower, marking the 5th straight week of declines and closing 5% down from the high hit in mid-April. It is a relatively quiet week for data aside from statements from key policymakers, so ensure you speak to one of the team to avoid missing out.

Elsewhere, commodity currencies gained following the weakness in the US dollar with the Australian dollar hitting a 3 ½ week high, but it was still a way off the 29 year high that it hit in early May.

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