Post by jackie on Jun 29, 2010 15:09:40 GMT 1
From the beeb. Good news for some holidaymakers & ex-pats with UK pensions or money in the UK.
The pound has hit a fresh 19-month high against the euro as the 16-nation currency comes under renewed pressure.
The pound rose almost half a cent to 1.2327 euros, its highest level since the immediate aftermath of the financial crisis in November 2008.
Markets are concerned ahead of a deadline this week for European banks to repay loans taken out a year ago at low interest rates.
Against the dollar, however, the pound fell more than half a cent to $1.5029.
The The European Central Bank (ECB) will offer funds on Wednesday to banks looking to repay 442bn euros worth of loans later this week.
"Markets are tense going into the end of the long-term refinancing programme, along with [Wednesday's] three-month auction," said John Hydeskov, senior currency analyst at Danske.
'Growing fear'
Last summer, the ECB was forced to offer European banks cheap 12-month loans to help them through the financial crisis. This was a longer repayment term than the usual three to six months.
HOLIDAY MONEY
The pound is likely to strengthen further against the euro over the summer, according to analysts.
If correct, this suggests you would be better off waiting to buy euros for your summer holiday, although the difference is likely to be small.
Duncan Higgins at Caxton FX says the rate could rise by two cents in the next month or so - from the current 1.23 euros level to 1.25 euros.
Bear in mind that this is the institutional rate - you won't get such a good rate online or at a bureau de change.
Travelex is offering a rate of 1.1937 to its online customers.
This means you would get 596.85 euros for £500. If the rate went up by two cents, you would get 606.85 euros.
But the ECB has said it will not offer 12-month loans this time around, raising fears that European banks may again face funding difficulties.
And as Jane Foley, research director at Forex.com, points out, the rate at which banks lend to each other has more than doubled in recent months.
So with heightened concerns about which banks still have bad loans on their books, there is a growing fear among investors about the health of the European banking sector.
"Tension in the banking sector is running high and the euro will remain under significant pressure [as a result]," says Ms Foley.
And little is likely to change until the results of European bank stress tests, which should reveal the extent of bad loans on their books, are released in September, she adds.
Duncan Higgins, currency market analyst at Caxton FX, agrees: "The pound is still undervalued and has further to appreciate [over the summer]."
Inflation concerns
But it is not just a weak euro that is boosting the pound.
Fears among credit ratings agencies and investors about the UK's burgeoning budget deficit have been allayed by last week's Budget, in which the new coalition government announced stringent measures to cut spending and increase taxes to reduce debt levels.
Sterling has also benefited from comments made by Bank of England Monetary Policy Committee (MPC) member Andrew Sentance on Monday, in which he said the UK would need to start raising interest rates soon.
Mr Sentance voted to raise rates at an MPC meeting earlier this month.
Analysts said that if inflation remains well above the Bank's 2% target rate, the pressure to raise rates will increase.
Inflation, as measured by the Consumer Prices Index, currently stands at 3.4%.
"If inflation expectations show further signs of rising, and if nominal demand remains robust, we think the MPC will become increasingly uncomfortable with the current loose policy setting," said Barclays Capital.
Higher interest rates make sterling a more attractive investment and tend, therefore, to increase its value.
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The pound has hit a fresh 19-month high against the euro as the 16-nation currency comes under renewed pressure.
The pound rose almost half a cent to 1.2327 euros, its highest level since the immediate aftermath of the financial crisis in November 2008.
Markets are concerned ahead of a deadline this week for European banks to repay loans taken out a year ago at low interest rates.
Against the dollar, however, the pound fell more than half a cent to $1.5029.
The The European Central Bank (ECB) will offer funds on Wednesday to banks looking to repay 442bn euros worth of loans later this week.
"Markets are tense going into the end of the long-term refinancing programme, along with [Wednesday's] three-month auction," said John Hydeskov, senior currency analyst at Danske.
'Growing fear'
Last summer, the ECB was forced to offer European banks cheap 12-month loans to help them through the financial crisis. This was a longer repayment term than the usual three to six months.
HOLIDAY MONEY
The pound is likely to strengthen further against the euro over the summer, according to analysts.
If correct, this suggests you would be better off waiting to buy euros for your summer holiday, although the difference is likely to be small.
Duncan Higgins at Caxton FX says the rate could rise by two cents in the next month or so - from the current 1.23 euros level to 1.25 euros.
Bear in mind that this is the institutional rate - you won't get such a good rate online or at a bureau de change.
Travelex is offering a rate of 1.1937 to its online customers.
This means you would get 596.85 euros for £500. If the rate went up by two cents, you would get 606.85 euros.
But the ECB has said it will not offer 12-month loans this time around, raising fears that European banks may again face funding difficulties.
And as Jane Foley, research director at Forex.com, points out, the rate at which banks lend to each other has more than doubled in recent months.
So with heightened concerns about which banks still have bad loans on their books, there is a growing fear among investors about the health of the European banking sector.
"Tension in the banking sector is running high and the euro will remain under significant pressure [as a result]," says Ms Foley.
And little is likely to change until the results of European bank stress tests, which should reveal the extent of bad loans on their books, are released in September, she adds.
Duncan Higgins, currency market analyst at Caxton FX, agrees: "The pound is still undervalued and has further to appreciate [over the summer]."
Inflation concerns
But it is not just a weak euro that is boosting the pound.
Fears among credit ratings agencies and investors about the UK's burgeoning budget deficit have been allayed by last week's Budget, in which the new coalition government announced stringent measures to cut spending and increase taxes to reduce debt levels.
Sterling has also benefited from comments made by Bank of England Monetary Policy Committee (MPC) member Andrew Sentance on Monday, in which he said the UK would need to start raising interest rates soon.
Mr Sentance voted to raise rates at an MPC meeting earlier this month.
Analysts said that if inflation remains well above the Bank's 2% target rate, the pressure to raise rates will increase.
Inflation, as measured by the Consumer Prices Index, currently stands at 3.4%.
"If inflation expectations show further signs of rising, and if nominal demand remains robust, we think the MPC will become increasingly uncomfortable with the current loose policy setting," said Barclays Capital.
Higher interest rates make sterling a more attractive investment and tend, therefore, to increase its value.
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Thank you