The Great Britain pound weakened against the euro today as Forex traders were hoping that the European crisis can be resolved and such hopes diminished appeal of the sterling as a haven against Europe’s troubles. The UK currency also fell versus the US dollar, erasing its previous gains.
Market participants were looking more favorably at the euro after Greece has received another portion of the bailout package. Yields on bonds of European countries were falling, easing debt pressure on Europe’s economies. The euro outperformed the pound in such conditions as the UK currency was no longer needed as a refuge against the crisis. At the same time, the dollar also has lost its safe haven appeal, allowing the sterling to gain on the US currency temporary.
EUR/GBP rose from 0.8089 to 0.8099 as of 12:51 GMT today. GBP/USD was down from 1.6038 to 1.6025 after it rallied to 1.6061 earlier.
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The Great Britain pound jumped today as the Bank of England announced its new lending program that should encourage banks to lend. The currency reached the highest level since 2008 against the euro after Moody’s Investor Service downgraded Italy’s sovereign credit rating.
The BoE announced today:
The Bank of England and HM Treasury are today announcing the launch of the Funding for Lending Scheme (FLS). The FLS is designed to boost lending to the real economy. Banks and building societies that increase lending to UK households and businesses will be able to borrow more in the FLS, and do so at lower cost than those that scale back lending.
The announcement mentioned the negative developments in the European economy and, indeed, Moody’s downgrade of Italy was just another evidence of the deteriorating economic environment. The rating agency cut Italy’s government bond rating to Baa2 from A3. The reasons cited were the rising borrowing costs and the worsening near-term economic outlook. Yet Moody’s also mention strengths of Italy’s economy:
The sovereign’s current Baa2 rating is supported by significant credit strengths relative to other euro area peripheral economies, including (1) maintenance of a primary surplus, (2) large and diverse economy that can act as an important shock absorber in the current crisis, and (3) substantial progress on the structural reforms which, if sustained in the coming years, could improve the country’s competitiveness and growth potential over the medium-term.
GBP/USD climbed from 1.5430 to close at 1.5574 and GBP/JPY advanced from the opening of 122.33 to the closing price of 123.29. EUR/GBP dropped from 0.7904 to 0.7862, while its intraday low of 0.7855 was the lowest since November 3, 2008.
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The Great Britain pound climbed to the highest level in almost two years against the euro today as better-than-expected macroeconomic data from the United Kingdom was a stark contrast to negative fundamentals in Europe. The currency was flat against the Japanese yen and fell against the US dollar.
The UK construction Purchasing Managers’ Index slipped from 56.7 in March to 55.8 in April. Analysts predicted a drop to 54.1. The index is still close to the March 21-month high and well above the neutral level of 50.0, indicating robust growth. At the same time, reports from Europe left little room to optimism, driving investors away from the euro to the relative safety of the pound.
The Bank of England will hold a monetary policy meeting next week and will announce its policy decision on May 10. Most experts say that the central bank may expand its asset purchase program. That does not bode well for the sterling.
EUR/GBP was down from 0.8159 to 0.8118 as of 21:47 GMT today, while the intraday low was the lowest since June 30 2010. GBP/USD slid from 1.6216 to 1.6197. GBP/JPY was near 129.76 after jumping from 129.88 to 130.75.
If you have any questions, comments or opinions regarding the Great Britain Pound, feel free to post them using the commentary form below.
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