The Pound Extends Gains Against Flagging Euro

20 July, 2012

Simon Eastman

Yesterday the pound extended its gains against the single currency as investors continued to look for a safer haven compared to the debt ridden Eurozone currency and despite the UK’s problems the pound is seen as a better bet. Also helping the Euro’s decline were comments from German Finance minister Wolfgang Schaeuble, who said the mere perception of insolvency risk in Spain could cause contagion in the euro zone and a Spanish debt auction which had low demand and higher borrowing costs.

“This is just a return to the sentiment we all know is lurking in the background. People are looking to sell on rallies, there’s no real good news out there for the euro,” said Richard Wiltshire, chief FX broker at ETX Capital.

The pound has been doing well this week despite the Bank of England minutes on Wednesday which showed members talking about a possible interest rate cut in addition to increasing the asset purchase and lower than expected retails sales yesterday which came in at 0.1% compared to 0.6% growth for last month and 1.6% compared to 2.4% for yearly growth.

The view is that any rate cut in the UK is not likely to be on the cards for some months, at least until this current round of asset purchase finishes which is expected to take 4 months. Until that point investors are happy to buy up sterling as a safe bet compared to the ailing Euro so these best rates since 2008 are likely to stick around. With many people worried about the state of the Eurozone we at Currency Index are seeing an increase in the number of UK based people selling their overseas homes and repatriating the funds. This of course is proving costly with the ever weakening Euro but with a typical sale time of a couple of months those who sold on forward contracts have managed to save themselves considerable money. If you are in the same boat, having agreed a sale and you are concerned about the value of the Euro speak with a member of the team today about the options available to you.

Today is fairly quiet on the data front from the UK with just the key Public Sector Borrowing figure being released at 9.30am. Across the pond it’s all about Canada with Producer Price Index figures and Bank of Canada core PPI figures. Will they add to the recent strength of the loony? Those sending money to Canada have seen the pound drop by over 2.5% against the dollar in the past month so any reprieve would be gratefully received.