Pound to Euro, US Dollar exchange rate: The Pound has declined significantly against the Euro

Currency

The Pound has declined significantly against the Euro.The Pound has declined significantly against the Euro.

Sterling / Euro and US Dollar exchange rates

The Pound has declined significantly against the Euro yesterday, slipping back towards 1.23 in London, while the single currency also made gains for a second day versus the U.S Dollar, as speculation mounts that Greece may seek to modify its austerity program following this weekend’s elections in a bid to remain with the Euro-zone.

The renewed optimism that Greece may stay within the EU has seen the Euro recover ground against most of the major currencies, but with concerns over Spain are still at the forefront with a bailout yet to be announced and the single currency is unlikely to build up any kind of momentum with bond yields still above 6% and concerns over Italy rising in the background.

The Pound pushed to a high of 1.56 against the Dollar on Wednesday, as underlying confidence in the UK economy is likely to remain increasingly fragile with markets still on high alert for the potential of additional quantitative easing. The Bank of England minutes will be released next week and will probably reveal that at least one more member in Adam Posen voted to extend bond purchases this month.

His recent comments suggested he was full of regret that he removed his recommendation to extend QE in May and if any more members also changed their vote, the Pound should come under increased selling pressure. Also, there was a rise in German bond yields through the day, which suggested defensive flows into Sterling may have lessened.

There will also be increased speculation that the Bank of England would look for alternative ways to cut borrowing costs and boost lending to help underpin the economy and this was significant in pushing the Pound to lows near 1.55 against the Dollar last night. The comments from Bank of England governor Mervyn King and Chancellor George Osborne in the key Mansion House Speeches today will be watched closely.

Euro / US Dollar

The Euro maintained a generally firmer tone on Wednesday with a covering of short positions offsetting underlying fears. Italian and Spanish bond yields edged higher again during the day, which undermined confidence to a degree, as 12 month Italian bill rates also rose sharply to 4%. There were also further uncertainties surrounding the Greek election this weekend.

New Democracy leader Samaras suggested that the EU would be prepared to be more flexible on austerity demands, while Syriza leader suggested that Greece would not be ejected from the Euro-zone. The comments and speculation that the austerity demands of Greece would be relaxed helped boost the Euro, which continued to rise against the Pound and the Dollar through the day.

In the U.S, the latest retail sales data was weaker-than-expected with a 0.2% headline decline for May, matching April’s revised fall. The data will dampen sentiment surrounding the U.S economic outlook and there will also be additional pressure on the Fed Reserve. After a peak close to 1.26, there was renewed selling of the Euro last night, as Moody’s cut Spain’s sovereign credit rating by three notches to BAA3.

Data Released Today

EU 10:00 Final HICP (May)

EU 10:00 Labour Costs (Q1)

U.S 13:30 Consumer Price Index (May)

– Ex Food Energy

U.S 13:30 Real Earnings (Q1)

U.S 13:30 Current Account (Q1)

U.S 13:30 Initial Jobless Claims (w/e 9th June)

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