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Currency update, September 30 - sterling falls due to concerns over Quantitative Easing

Published:  30 September, 2010

Sterling fell again against the euro yesterday after Tuesday's downbeat comments by a key Bank of England policy maker left sterling under severe pressure from investors.

Sterling fell again against the euro yesterday after Tuesday's downbeat comments by a key Bank of England policy maker left sterling under severe pressure from investors. 

EURO/GBP - 1.164
US$/GBP - 1.585
CHF/GBP - 1.550
CAN$/GBP - 1.636
AUS$/GBP - 1.637
ZAR/GBP - 11.038
JPY/GBP - 132.02
HKD/GBP - 12.303
NZD/GBP - 2.148
US$/EURO - 1.361
HUF/GBP - 323.08

Sterling dropped to a four month low of €1.1590/£1 as markets became more and more concerned over the prospect of further Quantitative Easing. Sterling held steady against the US dollar. In a speech on Tuesday, Monetary Policy Committee member Adam Posen said that the central bank should start pumping more money into the economy in order to avoid a prolonged slump of the sort that Japan saw in the 1990's. These comments certainly came as a surprise and saw sterling follow the US dollar down against the euro. Despite dropping a long way on Tuesday, poor UK data saw sterling drop further. The pace of service sector activity came in worse than expected and mortgage approvals stayed flat. In terms of data, there is key house price data which could see sterling drop even further if this dents the UK's prospects.

In the Euro zone, there was no real data out yesterday and the euro continued to trade on weak US and UK sentiment hitting a 4 month high against sterling and breaching the $1.36/€1. A number of technical levels were breached which also pushed the euro higher. 'Technical levels' are points on the graph of a currency price which traders follow very closely. Any deviation upwards or downwards means that traders buy or sell based on where they feel the prices are going. In terms of data out today, there is German unemployment data and inflation data for the Euro zone. Expect the single currency to continue to strengthen on poor UK and US sentiment.

In the USA, the US dollar continued to suffer yesterday - especially against the euro - as concerns remained over further Quantitative Easing by the Federal Reserve. This is widely expected to be announced at the end of the Fed's next meeting on November 2-3rd. There was no real data released yesterday, but last night there was an interesting Bill passing through the US Senate. The house is expected to enact a law that treats the artificially weak Chinese exchange rate as a subsidy and impose duties on goods imported from China to remove the artificially unfair advantage that the Chinese yuan currently enjoys in the global market. Given that most Chinese goods brought to the UK are paid for in US dollars, this could have far reaching consequences.

Elsewhere, a major hedge fund reported that the Japanese central bank is preparing a fresh round of monetary easing after a poor manufacturer's survey and a stubbornly strong currency. Japan wants to boost exports by keeping the Japanese yen low, and given the struggling recovery and the fact the currency is near a 15 year high against the US dollar, this is understandable.

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