The pound is mixed this morning, consolidating against the dollar, but gaining against the euro on speculation Europe’s debt crisis would spread to France. Sterling came under pressure against the dollar yesterday after the Bank of England said inflation is likely to moderate as economic growth deteriorates. Signs of slowing growth come as the government is trying to implement the deepest spending cuts in decades, boosting speculation that interest rates will remain at a record low for prolonged period of time to revive growth. There are no economic releases scheduled for today. The only notable event for the day is the Chancellor George Osborne’s report to the House of Commons on the economy today at 13:00.
The euro dropped against most of its major rivals during overnight trade on speculation France’s credit rating is under threat. Although rating agencies affirmed French top credit grade, country’s borrowing costs are rising as Europe’s debt crisis makes investors cautious of lending to any nation other than Germany. Yield on 10-year French government bonds surged by 90 basis points more than German, even though both carry AAA grades from major rating companies. In addition, the European Central Bank purchased Spanish and Italian government bonds for a third day in order to drive their yields lower. Expect for the single currency to remain volatile on short/medium term as debt crises that started on the periphery of the region continues to spread throughout the Eurozone.