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UK interest rate rises lag behind

Published:  14 April, 2011

Sterling fell to a five and a half month low against the euro yesterday as investors bet that UK interest rate rises would lag behind those in the euro zone.

Currency rates:
EURO/GBP - 1.1265
US$/GBP - 1.6331
CHF/GBP - 1.4578
CAN$/GBP - 1.5694
AUS$/GBP - 1.5507
ZAR/GBP - 11.0765
JPY/GBP - 136.364
HKD/GBP - 12.6996
NZD/GBP - 2.0585
SEK/GBP - 10.1758
US$/EURO - 1.4492

The pound was flat against the US dollar as a mixed set of unemployment figures failed to support the UK currency. Figures showed that the number of people unemployed fell to 2.48 million with the unemployment rate beating expectations to show 7.8%. Any optimism was offset by the fact that the number of benefits claimants increased, and wage growth remained subdued.

Euro strength saw the single currency hit a high of €1.1205/£1 yesterday as investors priced in a 50% chance of an interest rate hike by the ECB in both August and September. Against the US dollar, the euro hit a 15 month high of $1.4521/ £1 as global risk aversion subsided and investors sought higher yielding currencies.

In the USA, the Federal Reserve's loose monetary policy has seen the currency suffer against the euro. Analysts expect both sterling and the US dollar to underperform in the coming weeks, which should see little movement on the currency pair.

Elsewhere, the Swedish krona strengthened as the government boosted its economic forecasts. The Chinese yuan reached a 17 year high after suspicions that the government may raise the bank's reserve ratio. The Japanese yen weakened as risk appetite returned following this week's second earthquake aftershocks.

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