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Currency update, July 22: sterling falls again

Published:  22 July, 2010

Currency daily update for July 22 from Smart Currency Exchange: sterling fell yesterday after the minutes from the Bank of England's latest policy meeting on interest rates showed a dampened outlook for growth.

Currency rates, July 22:
EURO/GBP - 1.187
US$/GBP - 1.521
CHF/GBP - 1.587
CAN$/GBP - 1.589
AUS$/GBP - 1.725
ZAR/GBP - 11.501
JPY/GBP - 131.64
HKD/GBP - 11.828
EURO/US$ - 1.281
NZD/GBP - 2.126
HUF/GBP - 338.80

As a whole, there was a lack of confidence from the policy makers as further quantitative easing (injection of money into the economy) was discussed. Despite a general agreement that inflation would stay stubbornly high, the committee felt that the outlook for growth was poor.

Against the US dollar, the pound slipped back below $1.52/ £1 and despite a strong start against the euro, the pound fell back below €1.19/ £1. One member - Andrew Sentance - yet again called for a 0.25% rise in interest rates, and some analysts expected that he would be joined by another member calling for increased rates.

However, the vote showed that all seven other members voted for rates (and the emergency funding programme) to be kept on hold for another month. Out tomorrow, there is monthly retail sales data which is expected to show a 0.5% rise. However, this could see an unexpected World Cup related boost.

In the Euro zone, the euro weakened in early trading against both the US dollar and sterling as a bond auction in Portugal was surprisingly undersubscribed. The lower than expected demand saw yields on the bonds jump sharply, which caused investors to sell the euro, as low demand for government debt spooked investors. After the Bank of England minutes were released, the euro recovered against the pound.

There was no real data released today in the Euro zone, but tomorrow sees a raft of purchasing manager data and industrial manufacturing data which is expected to show a mild decline.

In the USA, the US dollar strengthened yesterday as strong earnings data from the US stock markets helped drive demand for the US currency. iPhone makers Apple announced stronger than expected earnings and an upbeat earnings forecast, and several other companies also posted strong results.

However, concerns over Fed Chairman Ben Bernanke's half-yearly monetary policy speech to the US Senate tempered the dollar's rally as investors were concerned that the recent poor data would impact on monetary policy and see the Chairman go back on the exit strategy he had outlined earlier in the year. Out today, there is unemployment claims data and existing homes sales data.

Elsewhere, New Zealand consumer confidence fell by 5% for the second month to hit the lowest level since August 2009 and Australian business confidence dropped to the lowest level in a year in the second quarter.

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