Moneycorp euro update - Best GBP-EUR Rate in 15 months

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It was another poor week for the euro, which started the New Year as it had ended the old; on the defensive. This week we saw the GBP-EUR rate rising to levels above 1.21, the highest rate for the pair within the last 15 months.

The economic data from Euroland did not help matters. Consumer confidence was down as were retail sales in the eurozone. Germany bucked the negative trend with growth in the services sector but a -4.3% annual fall in factory orders rather spoiled the image.

The euro recovered some ground on Thursday after the success of Spanish and Italian sale of debt. Investors were queuing up to buy Spanish and Italian paper. Rome shifted €12bn in short-term bills. Spain's treasury responded opportunistically to strong demand for €5bn of two- and three-year bonds by doubling the amount it sold.

The successful auctions were positive for the euro, as was a press conference held by the European Central Bank president following the Bank's decision to keep monetary policy on hold. Mario Draghi made a point of telling his audience that last month's half-billion-euro Long Term Refinancing Operation (LTRO) had prevented a credit crunch. The implication was that the ECB would repeat the operation as and when necessary, so keeping credit crunches off the agenda. He also refused to rule out a programme of quantitative easing (although if the LTRO and the Bank's steady buying of government bonds are not QE measures it is difficult to know how to categorise them).

The successful auctions and the upbeat ECB press conference combined to make investors feel much more positive about the euro, which was Thursday's best-performing currency. It went up by one yen and one and a half US cents, all of those gains coming after the ECB press conference. The US dollar and the yen were the laggards, appetite for them dented by the new-found confidence in the euro. Sterling gave up more than half a cent against the euro but elsewhere was mostly ahead on the day. The Swiss franc tagged along with the euro.

However, this afternoon the euro tumbled again after speculation that ratings agency Standard & Poor's (S&P) was set to downgrade several eurozone countries. S&P declined to comment about the speculation.

"There seems to have been some sort of a leak from S&P and whether this is real or not, who knows. But the market is selling off as a reaction to this, giving it some credibility" said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York.

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Moneycorp euro update - Best GBP-EUR Rate in 15 months

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