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Currency update, September 28 - sterling hits seven week high against dollar

Published:  28 September, 2010

Sterling rose against the US dollar to hit a seven week high of $1.5867/£1 as the US currency struggled to shake off concerns that the Federal Reserve would ease monetary policy further to stimulate the flagging recovery.

Currency Rates

EURO/GBP - 1.178
US$/GBP - 1.578
CHF/GBP - 1.554
CAN$/GBP - 1.633
AUS$/GBP - 1.650
ZAR/GBP - 11.125
JPY/GBP - 132.92
HKD/GBP - 12.247
NZD/GBP - 2.158
US$/EURO - 1.339
HUF/GBP - 328.01

The movement is clearly more down to US dollar weakness than sterling strength, as sterling's continued weakness against the euro shows. Sterling continued to languish around the €1.1750 mark against the single currency, as the pound continued to track the euro's recent strength against the US dollar. UK data didn't help either, with a survey from property market researcher Hometrack showing that UK house price growth has fallen by 0.4% in September - the lowest rise for 18 months. However, the impact of this was limited, as a flagging housing market has already been priced in to sterling's value. In terms of data today, the main release is the trade balance figures. Investors are desperate for exports to increase and start driving a 'rebalancing' of the economy from debt led growth to export led growth, and this figure will give a good idea of the situation. Additionally, the final GDP figure for the 2nd Quarter is released. This should remain unchanged at 1.2%.

In the Euro zone, the euro continues to benefit from concerns in the USA. Against the US dollar, the euro is holding strong at $1.3480/€1 as market participants back the single currency with the prospects of further Quantitative Easing in the USA. Monetary supply in the Euro region came in higher than expected showing a 1.1% increase against an expectation of 0.4%. More money flowing round the economy means better growth prospects, so this data helped the euro. It is quite incredible that sentiment towards Europe is as good as it seems given the serious structural issues that remain with debt in most of the region. There is a fair amount of data released today, with consumer spending, preliminary German inflation data and German consumer confidence data.

In the USA, gold hit an all time high of $1,300 per ounce and demand for US treasury bonds shot up. Further US bond auctions later this week are expected to see similarly high demand. The jump in demand for these 'safe haven' assets is as a direct result of the market expectation of further easing of US monetary policy by the US Federal Reserve. There was no real US data released yesterday, and today sees US consumer confidence which is expected to drop off marginally on last month.

Elsewhere, the concerns over further US Quantitative Easing saw crude oil and commodity prices drop with Oil dropping below $77/barrel. Concerns over the global recovery left investors and analysts querying future demand for energy. As a result, commodity and resource based currencies - notably the Canadian dollar - fell yesterday as the currency tracked falls in the Canadian stock market.

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