Sterling recovers as investors take profit from euro

Published: 10 June, 2011

Sterling recovered from a one month low against the euro as investors took profits in the euro after the ECB signalled that it would raise interest rates next month.

Currency rates

EURO/GBP - 1.1263
US$/GBP - 1.6271
CHF/GBP - 1.3717
CAN$/GBP - 1.5880
AUS$/GBP - 1.5357
ZAR/GBP - 11.019
JPY/GBP - 130.279
HKD/GBP - 12.664
NZD/GBP - 1.9746
SEK/GBP - 10.233
US$/EURO - 1.4450

The Bank of England meeting also went as expected, with the MPC voting to maintain interest rates at the record low of 0.5%. Earlier in the week, sterling had come under pressure as the IMF said that the UK's AAA credit rating was under threat, stating that further quantitative easing could be needed if growth continued to suffer.There was slightly less pressure on the MPC to amend policy after poor factory and services activity data last week and the general UK slowdown. Markets have in recent months scaled back their expectations of an interest rate hike to early 2012 in the UK.

In the euro zone ECB meeting - as expected - ECB President Jean-Claude Trichet stated that the committee would use "strong vigilance" with regards to inflationary pressures - a phrase that many take to mean that there will be an interest rate hike of 0.25% next month. However, the euro slipped against both the US dollar and sterling as President Trichet stated that there were "risks and elevated uncertainty" for the future, and as investors booked in profits from trades backing the euro ahead of the ECB meeting. Out later today there is European inflation figures and industrial production data, so call in

In the USA, the US dollar strengthened against the euro as Jean-Claude Trichet scaled back the possibility of further interest rate tightening beyond next month. In addition, US unemployment figures also unexpectedly jumped, which saw risk appetite fall marginally and saw euro losses pull back slightly. Earlier in the week, the US dollar fell to a record low against the Swiss franc as Chinese policymakers warned against investing too heavily in US dollar denominated assets.

Elsewhere, Japan's 1st Quarter GDP shrank by 0.9% against the 4th Quarter 2010 figures demonstrating the impact of the recent earthquake and tsunami. The New Zealand dollar strengthened overnight after the Reserve Bank of New Zealand said that interest rates would need to rise over the next few years to contain rising inflation. Earlier in the week, the Australian central bank kept interest rates on hold and gave no hints about any further monetary tightening.

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