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Pound Euro Exchange Rates ? Sterling Improves on CPI Inflation Figure, but Gains in GBP/EUR are Tempered by Worrying UK Public Sector Borrowing Numbers

March 22, 2011 - Written by John Cameron

The Pound Euro exchange rate is 1.1528.

The Pound has gained some ground against the other majors due to this morning’s Consumer Price Inflation figure for February, which showed that UK prices are rising by an annualised 4.4%. Analysts had expected the figure to come out at 4.2%, so this release will be likely to cause an upward revision to UK Interest Rate expectations.

The data also showed a monthly increase of 0.7% since January, which is a significant rise in prices in a four week period. Analysts have commented that the rise in inflationary pressures is largely due to external factors including rising commodity prices (and in particular, spiralling crude oil prices).

On a less positive note for Sterling, UK Public Sector Net Borrowing figures which were released by the Office of National Statistics at the same time as the inflation numbers, showed worrying levels of public sector borrowing. The Public Sector Borrowing Requirement for last month came out at £11.8bn. This is the largest amount any UK government has been ever been forced to borrow in the month of February.

These UK PSBR figures served to temper the positive effects of the higher-than-anticipated inflation figure as analysts remain sceptical about the structural health of the UK economy. The GBP/EUR rate gained 40 pips in the hour following the announcement but has subsequently struggled to break higher.

The Pound will gain further direction tomorrow with the release of the Minutes from the Bank of England MPC meeting earlier this month. The vote split will be closely watched when the minutes come out; three of the nine-man committee voted for a rate hike in January. If any other member joined Weale, Sentance and Dale in voting for an increase, then the Pound could make further gains.

The UK Chancellor of the Exchequer, George Osborne, delivers his Budget tomorrow at 1230hrs GMT. Although there is not expected to be scope for much movement, given the state of the UK’s public finances, this has been billed as a ‘Budget for Growth’, which again suggests that it could prove to be Sterling-positive.

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TAGS: Euro Forecasts Pound Euro Forecasts Pound Sterling Forecasts

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