Sterling slips from near nine month high

Published: 19 October, 2010

Sterling slips from its near nine month high against the dollar in today's foreign exchange analysis from Smart Currency Exchange. If you would like to receive free bespoke currency advice then go to www.smartwinespirits.com.

Currency rates, October 19
EURO/GBP - 1.138
US$/GBP - 1.582
CHF/GBP - 1.521
CAN$/GBP - 1.614
AUS$/GBP - 1.605
ZAR/GBP - 10.939
JPY/GBP - 128.94
HKD/GBP - 12.278
NZD/GBP - 2.103
US$/EURO - 1.389
HUF/GBP - 316.70

Sterling fell against the US dollar yesterday, coming off its eight and a half month highs as investors became concerned that the widely anticipated second round of Quantitative Easing in the USA (known as "QE2") would not be as aggressive as first thought.

This saw investors reversing so called 'short positions' (i.e. bets against the US dollar) in order to protect themselves if the reality is more upbeat than sentiment currently suggests. The movement saw sterling eradicate gains it had made after data showed that house prices had risen for the first time in four months.

Despite this, sterling remains vulnerable ahead of Wednesday's "perfect storm" of data - with the Government's spending review and the Bank of England's minutes released. The Bank minutes are expected to show a three way split on monetary policy - the kind off uncertainty that will not make investors confident. Whilst there may be an element of this that is already priced in to the sterling price, there is still scope for significant volatility.

In the Eurozone, it was a relatively quiet day for data in the region, with the major release coming on Thursday in the form of business surveys for manufacturing and services data. The single currency traded on sentiment, and similar to sterling, the euro slipped against the US dollar for the second day running as investors scaled back expectations over the scale of the Federal Reserve's intervention. There is key economic sentiment data out for Germany later today. As the region's largest economy, this can have a significant impact.

In the USA, there was muted reaction to US industrial production figures, which showed a mild decline on last month. The key issue yesterday was trader concern over being too exposed to bets against the US dollar in case the next bout of Quantitative Easing is much lighter than expected. Out later today, there is housing data and Ben Bernanke speaks later this evening so be careful these events don't cause any unexpected movement.

Elsewhere, the Australian dollar slipped against the US dollar like all other majors yesterday, but did recover marginally to end the day just shy of AUS$1/ US$1 which it breached for the first time since 1983 on Friday. The conclusion of the weekend's Plenary Session of the Communist Party of China sees the global powerhouse finalises the next five year plan. The result is expected to show that China is expected to focus on shifting GDP away from dependence on foreign exports and move towards domestic consumption.

* Smart Currency Exchange is a currency partner to Harpers Wine and Spirit. Harpers Wine and Spirit has teamed up with Smart to provide readers with a free bespoke currency service. If you are making or receiving international payments and are interested in talking to Smart please go to: www.smartwinespirits.com to get a free no obligation quote or to download the Smart Wine and Spirit report. Alternatively call Smart on 0207 898 0500.

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