Forex News

Back to Forex Market news

Sterling near 3-1/2 yr high vs euro on Greece worries

09 May, 2012 - Reuters
  • Pound close to levels last seen in autumn 2008
  • Unease grows over Greek political landscape
  • Sterling falls vs dollar
  • Risks to UK growth could dent pound in longer term

By Nia Williams

LONDON, May 8 (Reuters) - Sterling hovered within sight of a 3-1/2 year peak against the euro on Tuesday as election results in Greece and France cast doubt on the durability of austerity plans aimed at tackling the euro zone debt crisis.

Strategists said the pound could extend gains in the near term if politicians in Greece failed to form a new government following a shock election result that left questions over the country's ability to avert bankruptcy and stick with the common currency.

But the pound fell against the dollar, dragged down as the political uncertainty in the euro zone encouraged investors to shun riskier assets in favour of the safe-haven U.S. currency.

Sterling may also come under pressure if debt contagion and economic slowdown in the euro zone started to affect the UK economy and fuel speculation the Bank of England could extend its asset purchase programme to boost growth.

"Our view is that euro/sterling will move very gradually to the downside, but the more acute the problems are in Europe the more likely it is we are going to see a negative impact on the UK economy as well," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi.

Hardman has a 12-month euro forecast of 77 pence.

The euro was last steady at 80.59 pence, having hit a trough of 80.37 pence on Monday following the Greek election, its weakest since November 2008.

Traders said they would look to sell any rallies in the euro towards 81 pence, and most expect it will break below 80 pence.

The fall in the euro pushed the trade-weighted sterling

index to 83.9, a 33-month high.

Aside from developments in the euro zone, focus for the pound will centre on a Bank of England policy decision on Thursday.

The BoE is expected to keep interest rates on hold and the quantitative easing total at 325 billion pounds. Although the UK is in recession, market players expect persistently high inflation to prevent the bank from easing policy further for now.

Quantitative easing, which involves printing money to stimulate growth, tends to weigh on a currency and sterling could come under pressure if market players start to bet policymakers will restart the programme in coming months.

POLITICAL RISKS

Greece's Left Coalition party, propelled into second place in the election after campaigning against the bailout deal, has been given a three-day window to try and form a coalition after New Democracy failed to make headway.

Left Coalition leader Alexis Tsipras said on Tuesday pro-bailout parties should renege on an EU/IMF rescue deal after they were rejected by voters.

This spooked markets, weighing on the euro and boosting the dollar, pushing sterling down 0.3 percent to $1.6143.

"There is an awful lot of concern out there and if that breaks loose then that will be very dollar-positive and will hit cable (sterling/dollar)," said Kathleen Brooks, research director at FOREX.com.

But sterling was "well placed to outperform the euro".

As well as uncertainty in Greece, investors were concerned about whether new French President Francois Hollande's focus on growth would clash with Germany's insistence on fiscal austerity.

(Additional reporting by Jessica Mortimer and Philip Baillie; Editing by John Stonestreet)

Copyright Thomson Reuters 2012. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.

Back to Forex Market news

Currency Converter

Rate: 1.5169
=
Rate: 0.6592
=
Indicative Rates OnlyThe rates we display on the Currency Converter are neither "buy" or "sell" rates. They show mid-market rates without allowing for spreads or handling fees, and should be used for indicative purposes only. Check our Customer Rates to see the rates we offer to customers. Please read terms of use Go
See My FX Dashboard for more info

Register Free

Send money overseas at better rates than the banks.

Register today
Already registered? Login

Get our free commentary

Stay on top of the news with updates from our expert dealers on the latest currency movements. You can unsubscribe any time and your email address is safe – see our >Privacy Policy.


Keep me up to date:

Get free rate alerts

/
 
Choose currency pair and enter the exchange rate. An alert will be triggered when the exchange rate is reached and an email will be sent to you. You can unsubscribe any time and your email address is safe – see our Privacy Policy.

Sitemap

IMPORTANT: Use of this website is subject to the Website Terms. Use of the Services of the UKForex Limited is subject to the Client Agreement. Nothing on this website constitutes or should be construed as financial advice. This information has been prepared for distribution over the internet and without taking into account the investment objectives, financial situation and particular needs of any particular person. UKForex Limited makes no recommendations as to the merits of any financial product referred to in this website, emails or its related websites.

DISCLAIMER: UKForex makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this web site. Read full disclaimer.

UKForex provides international money transfer services to private clients and business customers. Use our free currency converter, exchange rate charts, economic calendar, in-depth currency news and updates and benefit from competitive exchange rates and outstanding customer service.

UKForex is regulated by the Financial Conduct Authority (FRN: 521566) for the provision of payment services.

Money Laundering Regulation Number (MSB): 12219180. Issued by HM Revenue & Customs (HMRC)
Read our Money Laundering Statement