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Currency update July 1: Sterling suffers losses

Published:  01 July, 2010

Currency update July 1: Sterling had a poor day today, falling back below $1.50/ £1 against the US dollar and dropping by over 1% against the euro back below €1.22/ £1.

Currency rates: July 1
EURO/GBP - 1.216
US$/GBP - 1.490
CHF/GBP - 1.598
CAN$/GBP - 1.588
AUS$/GBP - 1.783
ZAR/GBP - 11.489
JPY/GBP - 131.83
HKD/GBP - 11.608
NZD/GBP - 2.187
HUF/GBP - 348.37

The reason for sterling's poor performance was mainly down to the fact that the pound has performed so well over the last few days - especially against the euro. As a result, many speculators that had been betting on sterling strength decided to lock in their profits, which saw funds flow back out of sterling and saw sterling fall.

In addition, the pound was hit by weaker than expected housing figures which showed that prices rose by a mere 0.1% on the month. Bank of England policy maker Adam Posen added to the pound's woes as he issued a warning over the UK economy's fragility - in stark contrast to his colleague's rather 'hawkish' comments (i.e. arguing for interest rate rises).

In the Euro zone, concerns eased slightly over debt problems in the region as there was lower than expected demand for an allotment of European central bank funds. This was good news, as there have been concerns that banks were having difficulties meeting their short term obligations.

However, many analysts are still expecting yesterday's euro rally to be short lived as the currency carries far more risk than the pound. In terms of data, there is euro zone PMI manufacturing data which is expected to stay roughly the same.

In the USA, the S&P 500 stock market dropped below a key level of 1,040 with expectations that this will drop further towards 1,015. This drop cemented the worst quarterly performance for over a year and has seen the US dollar strengthen as investors move towards the safer haven assets of the US dollar.

ADP unemployment data was worse than expected. There is further unemployment data out today which will give a better picture in the run up to tomorrow's Non-Farm payroll.

Elsewhere, overnight the Australian and New Zealand dollars fell as risk aversion caused by the S&P 500 drop saw investors move away from the riskier higher yield commodity currencies. Data also showed that the pace of industrial sector activity also slowed.

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