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Currency News Update
02 July 2012

Regular readers will be unsurprised that the Eurozone once again dominated currency headlines last week. The EU summit produced a surprise deal in the early hours of Friday morning, meaning emergency European funds can now be injected directly into ailing banks and bond markets, rather than passing through central governments. This was seen as a victory for Spain and Italy over Germany, and a step towards common banking policy in the Eurozone, a move which Chancellor Merkel had been reluctant to accept.

The result by Friday morning was that the Euro posted its biggest single day increase in price for 8 months, with the see-saw effect giving a weaker US Dollar and better exchange rates for money transfers to the USA.

Since Friday, the knee-jerk reaction has been replaced by a little more calm in the markets, although Euro rates are still below Thursday's peak, and are falling slightly today.

The 'commodity currencies' also benefited last week, with exchange rates for the Australian Dollar, New Zealand Dollar and South African Rand all falling (2%, 1.7% and 3.5% respectively).

Looking forward to this week, the main news for the Pound is likely to be Thursday's monthly Bank of England meeting. Last month, the Bank voted narrowly not to extend Quantitative Easing, and speculation is rife that it will be extended this week, specially given lower inflation figures in June which will allow the Bank some more room to manoeuvre. QE has, in all previous rounds, hurt sterling and reduced exchange rates significantly, so to avoid the risk of falling rates, do consider fixing your exchange rate before Thursday's announcement. The move may be priced in somewhat to the market already, but we will not know until after the event what the effect on rates will have been.

UK GDP was also revised further down last week, confirming the double-dip recession, and with growth possibly still negative for the second quarter of the year, prospects for significant improvement in exchange rates seem some way off.

Another story is the Conservatives' decision to start a debate about a possible EU referendum in the UK - although a long way off, if this garners public support, what will the effect be on the Pound?

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