Europe Made Pound Stronger vs. Safer Currencies, Weaker vs. Euro

The Great Britain pound gained this week against the dollar and the yen as the optimism caused by the revelation of the plans to battle the sovereign-debt crisis in Europe damped demand for safer assets. That same optimism allowed the euro to outperform the pound.

The weak started with the doubts about ability of the European leaders to make decisive actions in dealing with the crisis. The resulting risk aversion sentiment eroded the strength of the sterling against the greenback and the yen, but made it stronger against the euro. Yet the summit on October 26 unexpectedly provided a tangible result as the members of the European Union reached consensus on some measures for rescuing the region from its woes.

The reaction of the Forex market was slow and wasn’t felt on the day of the summit, but on the next day the sterling climbed against safe currencies, but the euro surged even more. On the next day the euro retreated a little, while the UK currency held its ground against the yen and even advanced against the dollar.

The sustainability of the gains is questionable, though, as the fundamentals in Britain aren’t particularly good. The decreasing number of the mortgage approvals, the declining realized sales and the worsening consumer confidence — all that point out on the problems of Britain that may subdue the rally of the sterling.

GBP/USD climbed from 1.5930 to 1.6123, while GBP/JPY rose from 121.37 to 122.22, following the drop to 120.65. EUR/GBP surged from 0.8685 to 0.8791, while the weekly high of 0.8704 was the highest price since September 8.

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