April 12, 2011 - Written by John Cameron
STORY LINK Foreign Exchange Rates - Pounds to Euros GBP EUR, interest rate and CPI figures
The Pound Euro exchange rate (GBP/EUR) is 1.13007. The Euro Dollar exchange rate (EUR/USD) is 1.44156.
Today's main focus falls upon the UK's CPI figures due at 0930. Interest rate expectations are a key driver of price action at the moment and any surprises in this mornings CPI figures could send the market reeling. The expectation is that we will see the CPI level hold at 4.4%, any figure above this and we would expect to see a bullish move on the pound as traders draw in expectations for a rate hike from the Bank of England. Of course any figure below the expected 4.4% and we could see a bearish reaction on speculation that the Bank of England might hold any alteration to monetary policy and effectively be let off the hook in the short term.
Following last week's rate hike the Euro has benefited substantially on its yield, by no means does the single currency share the status of a high yield currency yet the ECB's determination to maintain price stability has put the currency ahead of the curve amongst the other majors. It is for this reason that the Euro has been so heavily supported despite ongoing concerns over contagion of the sovereign debt crisis. We would therefore argue that as long as the ECB maintain their stance on monetary policy and continue to implement interest rate hikes, we will see the Euro hold a position of power against its counterparts. This is likely in the coming weeks yet could alter as the picture for other major economies becomes clearer moving forwards this year.
Both the UK and the US economic recoveries are clouded with uncertainties, economic growth is slow and inflation is high creating a problem with stagflation. This is not uncommon for major economies emerging from recessionary times. The manner in which policy makers handle the situation is crucial in determining the speed of the recovery. If interest rates rise too quickly or too soon it can force slower economic growth and push the economy back into recession. It is for this reason that the Bank of England has adopt a wait and see approach moving into Q2 this year. Monetary Policy Committe members will await growth figures for Q1 this year before determining how best to alter monetary policy with a view to reigning in inflation.
Other data worth noting includes DCLG house price figures this morning and trade balance figures to accompany the CPI release at 0930. The ZEW index figures from Germany and the Bank of Canada's rate decision will also be of interest to traders trading in these regions.
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