Sterling dips against the US dollar

Published: 12 October, 2010

Sterling dipped marginally lower yesterday against the US dollar as concerns over further monetary easing encouraged investors to sell sterling as it failed to hold above $1.60/£1.

Currency rates, October 12:
EURO/GBP - 1.148
US$/GBP - 1.585
CHF/GBP - 1.538
CAN$/GBP - 1.613
AUS$/GBP - 1.622
ZAR/GBP - 10.967
JPY/GBP - 129.97
HKD/GBP - 12.308
NZD/GBP - 2.116
US$/EURO - 1.380
HUF/GBP - 314.81

Both David Cameron and George Osborne gave their support for further Quantitative Easing if the Bank of England deemed it necessary, with Cameron stating that monetary policy was a better way of boosting growth than fiscal policy. Despite this, many investors were wary of sterling dropping too far, as key inflation data released tomorrow is expected to show that UK prices are still rising at a stubbornly high rate.

High inflation is likely to dissuade the Bank of England from pumping more money into the economy, so we may see some sterling strength later today. In addition, there is trade balance and consumer confidence data so it is likely to be busy.

In the Euro zone, the euro slipped against the US dollar after briefly hovering above $1.40/€1. This was linked to profit taking following last week's comments that the euro was too strong.

In terms of data, French industrial production data came in worse than expected, showing no growth on last month. Italian data surprised to the upside, showing a 1.6% boost on expectations of no growth. Out today, there is German inflation data and ECB President Jean-Claude Trichet is due to speak in New York this evening.

In the US, with the markets closed for a bank holiday, there was very 'thin trading' - i.e. with so many banks closed, there was no trades of note to move the US dollar price significantly. With the weekend's meetings of key finance ministers failing to provide any solution to the issue of the recently dubbed "currency wars", the markets still await some sort of direction on this front.

Markets were flat ahead of today's minutes from the recent Federal Reserve interest rate decision meeting. With many expecting the Fed to start pumping more money into the economy, this meeting could detail the initial framework of how this is to be implemented.

Elsewhere, Australian business confidence fell in September - continuing the downward trend that started in February. As a result, investor expectations of an interest rate hike at November's policy meeting fell and the Australian dollar fell against its major counterparts.

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