By James Caley
Sterling has enjoyed another strong week against the Euro, reaching its highest level in 16 months, following nine consecutive days of gains. The Pound’s strength has been driven largely by growing concerns over the European economy, particularly France’s worsening financial position and rising government borrowing costs. Expectations that the Bank of England could raise interest rates next month have also helped support Sterling, making current GBP/EUR levels particularly attractive for those looking to purchase Euros.
The Euro has been one of the week’s weakest major currencies, with concerns over government debt in France and Italy weighing heavily on investor confidence. The single currency has also fallen to its lowest level against the US Dollar in around 17 months. Rising oil prices have added to inflation concerns across Europe, although the bigger issue for currency markets has been the growing uncertainty surrounding European government finances and the outlook for interest rates.
Meanwhile, the US Dollar has continued to strengthen against both Sterling and the Euro, benefiting from rising US government bond yields and expectations of further interest rate increases. Minutes from the Federal Reserve’s latest meeting showed policymakers remain concerned about inflation, with markets now pricing in a strong possibility of another rate increase before the end of the year. This has helped push the Dollar to its strongest levels in around 18 months, despite Sterling’s impressive performance against the Euro.
Today the economic calendar is relatively quiet, with Canadian unemployment figures and preliminary US consumer sentiment the main releases. US consumer confidence is expected to soften slightly, and a weaker-than-expected reading could take some of the strength out of the Dollar. With little significant economic data due from the UK or Eurozone, movements in Sterling and the Euro are likely to be driven by broader market developments as we head into the weekend.