Foreign Exchange: Pound Bounces Back Against Euro

Published: 19 November 2010 By MoneyHighStreet Staff 1 Comment
Updated: 19 November 2010

The Pound bounced back from a low of 1.1696 against the Euro and rose higher against the US Dollar.

Foreign ExchangeUK stocks rallied by the most in two weeks yesterday, consequently reducing the appeal of the Dollar as a safe haven.

As the Irish central bank governor Patrick Honohan said that he expects the country to ask the European Union and the IMF for a bailout worth “tens of billions” of Euros, the FTSE 100 Index rose 1.4% by midday in London.

Elizabeth Gregory, a market strategist at ACM Advanced Currency Markets, said that “the risk events that still linger for the Euro-zone outclass those in store for the UK. I still want to see the Pound strengthening against the Euro going forward.”

With a bailout of Irish banks drawing closer, there is some speculation that Portugal could be the next Euro-zone country seeking financial aid.

The Pound also gained ground against the majors despite speculation that UK banks may be exposed to the Irish debt crisis.

Britain had a larger budget deficit in October than initial estimates with a shortfall of £9.8 billion, the largest for any October on record.

One slight positive was that retail sales rose for the first time in 3 months, as consumers look to make large-scale purchases before the planned VAT hike in January.

The government’s deepest spending cuts in a generation are designed to all-but-eliminate the deficit over a four-year period.

The UK budget deficit is roughly 10% of gross domestic product and the Chancellor George Osborne is aiming to narrow the gap to just 2% of economic output by 2015.

In foreign exchange trading this morning, the Pound has lost some ground against the Euro, as increasing speculation that Ireland will receive financial aid has dampened demand for the Pound as a haven.

EUR/USD

The Euro rallied by the most in two weeks against the US Dollar yesterday.

With optimism that a bailout of Irish banks will avoid contagion across the Euro zones’ larger bond markets, it also made gained versus the majority of the 16 most actively traded currencies.

Commodity-driven currencies like the Australian and New Zealand Dollars also rose yesterday, as did global stocks.

Jack Spitz, managing director of foreign exchange at National Bank of Canada, said that “the market likes certainty, and the news around Ireland and its acceptance of help does create some clarity on the situation. The market is taking that optimistically.”

Market Analysis by Adam Solomon, Torfx

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