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Greece secures two more years to reach deficit

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Pound Sterling

The Pound remains close to a two-month low against the US Dollar as the market remains cautious ahead of tomorrow’s Bank of England inflation report. Sterling is also suffering from the effects of last week’s announcement from the government that it would use proceeds from the Bank’s bond-buying programme to trim its short-term borrowing, a move that the Bank’s Governor Mervyn King said equated to a ‘moderate loosening’ of policy. Investors will scrutinise the BoE's quarterly report on Wednesday, where the bank releases its latest growth and inflation projections, for indications of the outlook for the economy and the prospects of more easing in the future.

Against the Euro, Sterling has made gains due to investors remaining concerned about the situation with Greece despite European finance ministers agreeing to grant the beleaguered nation an extra two years to reach its deficit targets.

US Dollar

The ‘Greenback’ failed to make much of an impact on the markets yesterday, but was able to maintain all of the gains from last week as risk aversion continued to bolster the safe-haven currencies. The GBP/USD fell as low as 1.5868 during the mid-day session to reach a more than two-month low. Today sees a lack of important US data, meaning that any impacts to the currency will be as a result from announcements out of the Eurozone.

The Euro

The Euro has fallen to a two-month low as finance ministers from the region struggled to agree upon Greek aid, curbing demand for the single currency. The ministers did however agree to an extension of two years for the struggling nation to hit its deficit targets. The terms of the next round of bailout cash remains undecided and caused the Euro to slide against most of its major peers. The ministers are expected to hold another meeting over the issue next week in an effort to come to an agreement.

Australian Dollar

The ‘Aussie’ has declined against the majority of its peers due to the Euro crisis continuing to dampen demand for perceived riskier assets. A business confidence index for the Oceanic nation slipped to -1 from zero in September indicating that the nation’s economy is struggling to maintain its strong run earlier in the year.

New Zealand Dollar

The ‘Kiwi’ has held its ground against most of its most traded peers, remaining little changed as high-level talks in Europe decided the fate of Greece’s next round of bailout funds. Demand for perceived riskier currencies has been relatively low but the ‘Kiwi’ resisted after making gains against the Australian Dollar after its neighbour posted weaker than expected business confidence.

Canadian Dollar

The ‘Loonie’ remains close to parity with the US Dollar. Yesterday was a bank holiday in Canada and as a result the currency faced a quiet session. It is likely that the Canadian Dollar will make losses as the week continues due to the deterioration in demand for riskier assets thanks to the Euro crisis.

South African Rand

The Rand has weakened due to global risk aversion and concerns over Greece. Lowering commodity prices also impacted the currency, causing it to weaken against the US Dollar. Trading volumes were lower than normal due to yesterday’s US public holiday‚ but there is a lot of uncertainty in the market surrounding how the US fiscal cliff will be handled by US policy makers over the coming weeks, a situation that will see the currency weaken further.

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