LONDON (SHARECAST) - Concerns that the G20’s promise to cut deficits will damage growth prospects harmed the euro Monday, sending the single currency to a 19-month low against the pound.
The weekend meeting of leaders in Toronto produced a pledge to halve deficits by 2013 and stabilize debt by 2016.
That gave both the dollar and sterling a push in the right direction as America and other economies most likely to do well "will have to accept higher exchange rates”, said BNP Paribas in a note to clients.
Traders think the eurozone debt crisis will leave the region trailing Britain’s recovery following last week’s Budget which many believe is capable of mending the UK’s finances.
Bank of Englandpolicymaker Andrew Sentance chipped in again. The MPC member, who earlier this month voted for a quarter point rise in interest rates, said an increase in borrowing costs would still be needed despite the tax hikes and spending cuts planned by the coalition government.
Sterling hit 81.60 versus the euro, its highest since November 2008, and crept above $1.51, a seven week best against the greenback, despite a welcome increase in US consumer spending.
Nevertheless, some still reckon the austerity Budget will keep UK rates at a record low of 0.5% for some time yet.
"We maintain our bearish sterling stance on the expectation that recently introduced fiscal austerity measures will likely require the BoE to keep monetary policy accommodative until Q1 next year," Swiss bank UBS said.
