Sterling makes gains after Bank of England holds interest rates

Published: 09 September, 2011

Sterling strengthened against the US dollar, reversing its previous eight week low and also rose firmly against the euro yesterday, due to the Bank of England's decision to keep interest rates on hold.

Currency rates - September 9

EURO/GBP - 1.1501
US$/GBP - 1.5972
CHF/GBP - 1.3930
CAN$/GBP - 1.5795
AUS$/GBP - 1.5040
ZAR/GBP - 11.507
JPY/GBP - 123.67
HKD/GBP - 12.446
NZD/GBP - 1.9134
SEK/GBP - 10.265
AED/GBP - 5.863
US$/EURO - 1.3872

Gains were also made as the BoE decided to stick to its current asset- purchasing programme. Despite sterling's rally yesterday, it is seen as temporary and not a positive sign for UK economic recovery. The BoE's decision indicates that the UK is still in no position to warrant an immediate move- something which is evident from this week's weak data.

In the Euro zone, the euro fell to a two month low against the US dollar and decreased 1% to sterling and the New Zealand dollar. Out yesterday was the long awaited European Central Bank's interest rate decision that left the bench mark rate at 1.5% with no signs of increases in the near term. Though the euro may show signs of improving, as seen this week with better than expected retail figures for example, there are still fears of peripheral contagion and speculation that further volatility between the euro- dollar is to be expected.

In the US, the US dollar was strengthened against a basket of currencies. It was little changed against the yen and was up 1.1% against the Swiss franc. In a rousing speech last night, President Barack Obama launched his "American Jobs Act" and Fed Chairman Ben Bernanke hinted at further monetary easing in order to boost the stuttering recovery. It was made clear that the plan would not be funded by debt, but further efficiency savings.

Elsewhere, the rand advanced against all its major counterparts due to an increase in raw material prices. The rand strengthened for a third day in a row against the euro. Contrarily, after the Swiss National Bank's decision to enforce a ceiling, the Swiss franc weakened against 16 major peers, falling to a record low this week against the euro.

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