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Daily News from Senior FX Analyst – Samuel Allen

The pound has rallied this morning against a lacklustre performance from the Euro after the ECB announced that they might not be publishing all the results from the bank stress tests on Friday. The market interpreted this reluctance to release the data as an admission by the ECB that the data wasn’t quite as positive as previously stated . The GBP/EUR rate initially rose by half a percent to just over 1.1900 before finding resistance and the EUR/USD rate dropped back close to its 1.28 support level.

Minutes from the Bank of England’s July meeting helped to spur the pound on this morning when they showed that Andrew Sentance again voted to raise to 0.75% for the second month in a row, he cited the stubbornly high inflation rate as his reason to raise. A rise in interest rates could prove positive for the pound and erode the yield advantage of other higher yielding currencies like the AUD. The interest rate swap markets are still not expecting a rise until 2011.

The Bank of Canada raised their interest rates yesterday afternoon by 25 basis points to 0.75% which was in line with market predictions. The pound lost about 50 pips against the CAD before finding support at 1.5800 GBP/CAD. This move might be exacerbated when the American market opens this afternoon.

Looking forward to the rest of the week we have retail sales figures out tomorrow morning from the UK and then on Friday the much anticipated stress test results from the ECB.