Currency update, August 18: Sterling falls again

Published: 18 August, 2010

Sterling fell yesterday against the US dollar and euro yesterday after inflation data showed a slow down in UK price growth.

Currency Rates

EURO/GBP - 1.209
US$/GBP - 1.555
CHF/GBP - 1.619
CAN$/GBP - 1.605
AUS$/GBP - 1.726
ZAR/GBP - 11.326
JPY/GBP - 132.86
HKD/GBP - 12.086
NZD/GBP - 2.182
EURO/US$ - 1.286
HUF/GBP - 337.95

Sterling hit a high of $1.57/£1 in early trading yesterday before a US bank sold a large amount of sterling, and in thin trading, this caused the pound to drop down to a session low of $1.5560/£1. CPI inflation data didn't necessarily help sterling either, coming in lower than last month at 3.1% for the year against last month's reading of 3.2%. This is the eighth straight month that inflation has exceeded the Bank of England's 2% target and yet again requires Governor Mervyn King to write an explanatory letter to Chancellor George Osborne. King is adamant that inflationary pressures are short term and will ease over the next 2 years. This remains to be seen, but with the Bank of England minutes released tomorrow, it is likely that this will be the tone that was set.

In the Eurozone, German ZEW economic sentiment fell by more than expected after recent poor GDP data, but European sentiment as a whole improved. This mixed data had little impact as the euro rose 0.8% against sterling following a boost in risk sentiment towards the single currency after a better than expected bond auction saw investor confidence jump. The reason for this was that the Irish government successfully auctioned €1.5bn worth of bonds despite major concerns over the country's banking sector.

In the USA, the US dollar strengthened after a US bank sold a large amount of sterling. In addition, US industrial production jumped to 1% on the month - 0.5% better than expected. This saw Asian stock markets rise overnight despite a boost to the US dollar and Japanese yen related to risk aversion. There is little data out today, with the main US release being unemployment claims on Thursday.

Elsewhere, a leading measure of economic growth in Australia stalled in June and showing an overall figure of 1.9% for the second quarter - the smallest since September. The reason behind this is clearly the increased interest rates over the last few months that have filtered through to the 'real' economy and have impacted consumer spending.

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