Sterling strengthens due to euro debt concerns

Published: 18 April, 2011

Sterling strengthened on Friday against the euro which was hurt by suggestions that Greece would need to restructure its debt.

Currency rates - April 18

EURO/GBP - 1.1336

US$/GBP - 1.6265
CHF/GBP - 1.4583
CAN$/GBP - 1.5655
AUS$/GBP - 1.5415
ZAR/GBP - 11.1165
JPY/GBP - 134.876
HKD/GBP - 12.6539
NZD/GBP - 2.0513

SEK/GBP - 10.1257
US$/EURO - 1.4340

The euro's losses were limited, as expectations remained that the European Central Bank would keep raising interest rates at a faster rate than the UK. This week sees the start of a run of public holidays in the UK, so liquidity and volatility is likely to be less than it has been. One major piece of data released this week is the Bank of England's minutes from their recent meeting. With a sudden dip in inflation, many are expecting the minutes to show that the Bank will keep interest rates lower for longer.

In the euro zone, the euro fell this morning against the US dollar as markets grew uneasy over a Finnish election. Voters in the country handed an anti-euro party a key position in parliament which left markets concerned that Finland could use its right to vote on EU bailout funds to slow down requests to shore up debt in Portugal. With fresh concerns over Greece and now issues with Finland, we could see the euro falter.

In the USA, better US data on Friday failed to help the US dollar despite stronger stock markets and lower bond yields - both of which would normally see a stronger US dollar. Markets seem to have taken the view that the Federal Reserve will not be touching monetary policy for some time and that growth in the country will remain slow. It is a relatively quiet week this week, but low liquidity could see some large swings if anything does happen.

Elsewhere, the New Zealand dollar fell after lower than expected inflation data reduced the chance of a resumption of the central bank's interest hikes. In addition, the Japanese yen fell to a 2 ½ year low against the Australian dollar on expectations that the Bank of Japan would lag behind other central banks on interest rate rises.

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