Sterling slips with ailing euro over Ireland woes
10/Δεκ/2010 • Currency Updates•
Sterling was pulled down by the euro on Wednesday as Ireland’s ratings downgrade and political uncertainty weighed on the single currency, in turn knocking the pound down against a firmer US dollar.
Sterling showed little reaction to the Bank of England’s monetary policy committee (MPC) keeping policy unchanged, in line with market expectations.
Positive sentiment, however, hit the markets yesterday following the prediction from Barcap that the pound, which has been hit hard since the financial crisis, will stage a strong recovery throughout 2011 and outperform the major counterparts.
The euro fell to session lows against the dollar and yen on political concerns after Ireland’s centre-left opposition party said it would wait until next week to decide how it would vote on Ireland’s IMF/EU bailout.
The news followed Fitch’s move to cut its rating for Ireland, which secured an emergency European Union bailout last month, also weighing on the euro.
Analysts said Ireland’s woes reinforce market concerns about Eurozone sovereign debt which, along with strong UK economic data, have tended to strengthen sterling against the euro.
The euro slipped against the dollar on Thursday after ratings agency Fitch downgraded Ireland’s sovereign debt while the dollar edged up, still supported by this week’s jump in US treasury yields. With trade thin, traders said the euro was also pressured due to selling by model-related funds and US corporate models.
The dollar continued to draw support from an extension of US tax cuts announced this week, but gains were capped as a retreat in 10-year US treasury yields from a six-month high hit on Wednesday quelled demand for the greenback.
Analysts said the extended tax cuts were seen as supportive for the economy and therefore the dollar, while US treasuries have sold-off heavily this week as the stimulus move fuelled fears of inflation and deteriorating US fiscal health.