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Sterling hit two-month high against US dollar yesterday

Published:  06 October, 2010

Sterling recovered to hit a two-month high against the US dollar yesterday after stronger than expected UK services sector data and expectations over further monetary stimulus in the USA.

Sterling recovered to hit a two-month high against the US dollar yesterday after stronger than expected UK services sector data and expectations over further monetary stimulus in the USA.

Currency Rates
EURO/GBP - 1.149
US$/GBP - 1.593
CHF/GBP - 1.540
CAN$/GBP - 1.614
AUS$/GBP - 1.634
ZAR/GBP - 10.929
JPY/GBP - 132.31
HKD/GBP - 12.354
NZD/GBP - 2.123
US$/EURO - 1.370
HUF/GBP - 309.38

Sterling hit a high of $1.5928/£1 on the day as growth in the services sector unexpectedly jumped off of August's 16-month lows. Analysts were keen to point out that this was not the reversal of the UK's woes, and as such, any return to favour from the US dollar will see sterling slip back down. Sterling was not so successful against the euro, as euro buying in Asia helped strengthen the single currency. There is key data to be released on house prices tomorrow which is expected to show a slight increase on last month.

In the Euro zone, the last two days has seen strong demand for the euro from Asia. There seems to have been a shift from the use of the US dollar as a global reserve currency to the use of the euro. As concerns grow over the state of the US recovery, this seems to have caused the shift and as a result is supporting the euro. In terms of data, retail sales slipped unexpectedly last month to -0.4%, but the services PMI data came in better than expected.

In the USA, concerns still remain over the widely expected fresh monetary easing that is expected over the next few weeks. As a result, the US dollar fell to the lowest level against the euro in 8 months hitting a session high of $1.3851/€1. Combined with the diversification of currency holdings by Asian banks, it was a poor day for the US dollar. US data showed that services sector activity improved slightly more than expected in September which helped slightly, but the overriding concerns over further Quantitative Easing prevailed.

Elsewhere, the Australian central bank kept interest rates on hold despite being expected to raise them to 0.25% for the first time in five months. In addition, the Bank of Japan unexpectedly cut interest rates to help devalue the Japanese yen and manage the value of their exports which have become prohibitively high after the yen hit a 15-year high against the US dollar.


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