British pound sterling to euro exchange rate benefits as markets turn negative; UK CPI numbers just in

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Published on Tuesday, 18 September 2012 08:59

Written by Sam Coventry

The pound to euro (GBP/EUR) is 0.14 pct higher than at Monday night's close, the currency pair is at 1.2413 as it is shown that UK inflation dropped to 2.5 pct in August, as measured by the consumer prices index. That's in line with forecasts.

This morning markets are red showing a distinct unease over the Eurozone crisis; and this works in favour of the pound sterling (Currency:GBP) thanks to increased demand for safe-haven UK government gilts and GBP cash piles.

The Bank of Spain has just reported a rise in bad bank loans, to a new record high.

A total of 9.86% of loans made by Spanish banks are now in arrears, up from 9.42% in June.

Spanish banks balance sheets have turned increasingly toxic since the financial crisis began, mainly due to borrowings made in the property boom.

There are also some alarming news-bites coming out of Greece, with a government minister predicting that the Greek economy will have shrunk by a quarter before the crisis is over.

Elsewhere, the Pound again found support on dips towards 1.62 against the U.S Dollar on Monday and pushed to highs above 1.6270 to the highest level since April.

This morning we see that the pound to dollar exchange rate (GBP/USD) is 0.04 pct lower at 1.6244.

The Pound continues to gain net support against the US dollar from the Federal Reserve quantitative easing announcement last week.

The Fed has committed to pumping in up to $40 billion a month purchasing mortgage-backed securities until the recovery shows signs of picking up.

The move has weakened the Dollar significantly and further weakness may be forthcoming. In the UK this morning, the focus will be on the latest consumer inflation data and a stronger-than-expected release would tend to increase speculation that there would be no move for the Bank of England to extend bond purchases in November.

"This could provide a degree of support for the Pound, although there would also be concerns surrounding the outlook for consumer spending. The UK currency has bounced back above 1.55 versus the Australian Dollar following a decline in risk appetite following the Fed decision," says Adam Solomon at TorFX.