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Foreign Exchange Rates : Euro Needs Positive CPI Inflation Figure to Arrest Slide

May 16, 2011 - Written by John Cameron

The Pound Euro exchange rate (GBP EUR) is 1.1479. The Pound Dollar exchange rate (GBP USD) is 1.6171.

The Euro remains delicately balanced in the currency markets, with concerns regarding the continuing Eurozone sovereign debt crisis being counterbalanced by expectations of several ECB interest rate rises over the next 12 months.

Friday’s session saw the release of highly positive Q1 GDP growth figures in Germany. The data showed that Europe’s powerhouse economy saw an increase in economic activity of 1.5% in the first three months of 2011, versus analysts’ expectations of a 0.9% rise.

Quarterly GDP growth figures for France also provided a much-needed fillip for investors holding Euro-denominated assets, when they were released on Friday morning. They showed a quarterly increase of 1.0% in France’s GDP versus expectations of 0.6% growth.

These encouraging GDP figures helped to take the GBP EUR exchange rate to 1.1364 by the middle of Friday’s morning session in Europe. However, the single currency was unable to maintain these gains and the week closed with GBP EUR standing over a cent higher than the daily low at 1.1471.

This week’s session began badly for the Euro, with GBP EUR opening at 1.1516, a considerably higher level than it’s Friday close. Euro-negative sentiment has been fuelled by concerns over the outcome of today’s EU Finance Ministers’ meeting in Brussels. The meeting will address continuing debt problems in Greece and Portugal amidst rumours that Greece will require a further €60bn of emergency loans.

One key participant missing from the meeting will be the head of the IMF, Dominique Strauss-Kahn, who was yesterday charged with a serious sexual assault and is currently being detained in New York. Msr. Strauss-Kahn has been a key figure in negotiating recent bail-outs for Greece and Portugal and his indefinite absence will add to the uncertainty regarding the Eurozone’s continuing debt crisis.

Today’s Eurozone CPI Inflation figure, due for release at 1000hrs BST, will be closely-watched with a print of over 1.5% for the core CPI figure needed if there is to be any Euro upside in the near-term.
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