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Emergency action by central banks helps boost Sterling against dollar

Published:  01 December, 2011

Sterling jumped by 0.8% against the US dollar yesterday after co-ordinated emergency action by several central banks saw investors jump towards riskier assets.

Sterling jumped by 0.8% against the US dollar yesterday after co-ordinated emergency action by several central banks saw investors jump towards riskier assets.

Currency rates - December 1

EURO/GBP - 1.1638

US$/GBP - 1.5645

CHF/GBP - 1.4291

CAN$/GBP - 1.5974
AUS$/GBP
- 1.5371
ZAR/GBP
- 12.7861
JPY/GBP
- 121.49
HKD/GBP
- 12.1678

NZD/GBP - 2.0181

SEK/GBP - 10.6088

AED/GBP - 5.751

US$/EURO - 1.3440

The Federal Reserve, European Central Bank, Bank of England and central banks of Canada, Japan and Switzerland agreed to cut the cost of US dollar swaps to help boost liquidity and help European banks hurt by the euro zone crisis. Despite the gloomy outlook outlined in Tuesday's autumn statement, sterling rallied against the US dollar, but slipped against 'riskier' currencies as investors felt more confident taking risks.

In the euro zone, the euro surged against the US dollar on the news of the co-ordinated action, in essence a huge injection of Quantitative Easing on a global scale. Liquidity - or the availability of borrowing - has been squeezed by the escalation of the European debt crisis. The measures are in no way a solution to the crisis and the euro faces a make or break 10 days. With rumours circulating of firms implementing assessments of the impact of a euro break up, European policymakers have until the December 9th summit to deliver an effective solution that delivers a long term fix to the problems.

 

In the USA, the US dollar weakened off against most of its major counterparts as the measures were announced. With cheaper US dollars now widely available, investors took advantage and bought into higher yielding 'commodity backed' currencies. Aside from this, there was some surprisingly positive data released in the US yesterday that showed that US private sector jobs increased by 206,000 in the previous month. Business activity data jumped and US pending home sales jumped by 10% in October. Combined with last week's strong retail sales, the figures painted a much better than expected picture of the US recovery than many had thought.

Elsewhere, commodity currencies surged as investors took advantage of increased risk appetite. The South African rand jumped by over 2% against the US dollar and the Australian dollar made similar gains.


Supplied by Nick Ryder of Smart Currency Exchange, the currency partner to Harpers Wine and Spirit who have teamed up with Smart to provide readers with a free bespoke currency service
Go to www.smartcurrencybusiness.com/winespirit for more information or call on 0207 898 0500.

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