Sterling reached a two month high against the Euro yesterday after the Euro fell on Greece’s debt worries. The Euro fell heavily on concerns that euro zone debt problems are spiralling out of control and when news arose of a ratings downgrade for Italy the Pound managed to peak at a high of over 1.1520.
Spencer Dale, the Bank of England’s chief economist, gave an uplifting comment in an interview with the Financial Times over the weekend that the central bank needs to start raising interest rates to combat soaring inflation.
Sterling also fell against the US Dollar as the debt worries of the euro zone encouraged traders to minimise their exposure in the risky currencies and flee to the safe havens of the US Dollar and Yen. The Pound fell to $1.6106 throughout the day which is near enough a 7 week low.
The Pound is vulnerable to further losses following comments from Moody today regarding ratings cuts to some of the world’s largest banks. Analysts have predicted that a fall below the crucial 1.60 level against the US Dollar is possible before the end of June.
The initial speech from Moody shocked the markets and investors immediately sold the Pound as weak growth figures in the UK are likely to see the Bank of England keep interest rates at the current 0.5%.
Over the course of Tuesday, the Pound made modest gains versus the Euro and has edged back to 1.62 against the US Dollar taking little notice to the poor UK borrowing figures that were released at 09:30. Figures showed the worst borrowing records in history for April, UK public sector net borrowing was £7.7 billion last month with is almost £2.5 billion higher than last year.
The revised Q1 GDP figures are due for release tomorrow, they are predicted to remain at 0.5% but any revision upwards will spur on the Pounds rally that we have seen over the past few days. Euro zone debt problems have over shadowed the potential of interest rate rises from the ECB, some positive news regarding the UK economy is what we need to break above 1.15 again.