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BoE report will show strength of UK economy's recovery

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Pound Sterling

The Pound steadied against the US Dollar yesterday after the currency pair made gains in reaction to higher than expected UK inflation data. The level of inflation increased to 2.7% in October, taking many analysts by surprise as they had been predicting a softer increase of 2.3%.

The news prompted some market players to trim bets on the Bank of England pumping more money into the economy, which could weigh on the exchange rate, however it helped the Pound rally to a session high of $1.5916.

Sterling traders should focus on today’s Bank of England inflation report and the latest unemployment figures for September. A disappointing set of figures will see the Pound weaken and raise doubts over the strength of the UK economy’s recovery.

US Dollar

The ‘Greenback’ increased its gains against its higher-yielding currency rivals as concerns over Europe continue to cause investors to seek safe havens. Today, the Dollar is likely to see higher levels of volatility as a batch of important US data is due for release.

The latest Core retail sales, and PPI figures will be released later this afternoon; all three are expected to come in well below last month’s results. If this turns out to be the case then confidence in the US recovery is likely to be dented and lead to a weakening of the Dollar.

The Euro

The Euro has touched two-month lows against the Swiss Franc and US Dollar due to European finance ministers struggling to agree on how to provide additional aid for Greece. Against the US Dollar the single currency has erased its losses following as increase in risk appetite. So far this year the Euro has lost 6.3% making it the worst performing developed-nation currency.

Australian Dollar

The ‘Aussie’ has strengthened to a two-month high against its New Zealand counterpart after retail sales in the smaller nation unexpectedly fell. Against the US Dollar the ‘Aussie’ reached its strongest level in a week after reports showed that Australia’s consumer confidence rose to a 19-month high. Over the past month the currency has risen by 3.4% making it the best performing developed-nation currency.

New Zealand Dollar

The ‘Kiwi’ has fallen against the majority of its most traded peers after figures showed an unexpected drop in third quarter retail sales adding to concerns that the nation’s economy is heading for a contraction. Figures show that the number of retail sales fell by 0.4% in the three months ending in September. New Zealand is also suffering from weak employment figures.

Canadian Dollar

The ‘Loonie’ is trading down against most of its peers after traders digested the news that the nation’s federal budget won’t be balanced until 2016-17, a year later than had been predicted. Comments from finance minister Jim Flaherty that the federal deficit will increase by as-much-as $5billion to $26 billion this year damaged confidence in the country’s economy. Continuing concerns over the health of Europe and worries that the US is edging ever closer to the fiscal cliff has dragged on the currency.

South African Rand

The Rand has strengthened to a weekly high against the US Dollar due to the rise in Gold and Platinum exports. The currency gained by 0.6% as the metals value increased. Traders in the Rand should keep an eye on the latest retail sales data due for release later today.