Sterling hit a fresh 9 month high against the euro yesterday, touching €1.1880/£1 after comments by Angela Merkel unsettled investors already disappointed by the outcome of last week’s EU summit. Traders sold the euro after the German Chancellor made comments that rejected raising the funding limit of Europe’s bailout fund in future. Sterling has made gains as investors move funds from euros into the relative safety of UK government bonds. Many investment banks have been scrambling to amend their sterling/ euro forecasts with many calling for the pound to be nearer to €1.25/£1 in the next few months. Be aware that sterling started 2011 well, jumping above €1.20/£1 but soon dropped to €1.10/£1 so if it does move, be prepared to take advantage to prevent it moving against you.

In the euro zone, with the EU summit falling short of any concrete commitments that would see the ECB issuing ‘eurobonds’ and credit rating agency S&P putting all 27 EU countries on review for a rating downgrade, it is no surprise that Angela Merkel’s comments caused a euro sell-off. Rating agency Fitch also said that a lack of a comprehensive solution to the crisis had put pressure on its own ratings of European states. Despite UK inflation data dropping back below 5%, the euro continued to fall throughout the day. Call in now for a live exchange rate.

In the USA, US retail sales dropped by 0.4% coming in lower than expectations marking a disappointing end to a relatively positive run of data from the USA. The Federal Reserve kept interest rates on hold overnight and is widely expected to wait until the New Year before launching any new initiatives. This disappointed traders somewhat and saw stocks fall. It is a relatively quiet day for data today but expect markets to be driven by euro sentiment. Call in now for a live exchange rate.

Elsewhere, the Australian dollar regained ground yesterday against the US dollar and sterling. Commodity backed currencies are particularly volatile at the moment given the ongoing concerns regarding the euro zone – ensure you don’t lose out.

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