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Currency update, August 23: A strong one for sterling

Published:  23 August, 2010

Last week was a strong one for sterling against the euro and this trend has continued this morning as it is trading at €1.2260/£1.

Currency Rates
EURO/GBP - 1.225
US$/GBP - 1.558
CHF/GBP - 1.610
CAN$/GBP - 1.631
AUS$/GBP - 1.743
ZAR/GBP - 11.354
JPY/GBP - 132.99
HKD/GBP - 12.112
NZD/GBP - 2.202
EURO/US$ - 1.270
HUF/GBP - 344.48

Last week was a strong one for sterling against the euro and this trend has continued this morning as it is trading at €1.2260/£1. During this past week, the Bank of England minutes for the month of August showed that the decision to keep interest rates unchanged was not unanimous for a third successive month as Andrew Sentance was once again the lone dissenter, calling for an increase of 25 basis points to 0.75 percent. Sterling was initially well supported after the Bank of England minutes as there was no talk about a further bout of quantitative easing. For this upcoming week broader risk trends will dictate sterling price action as sterling faces a light economic calendar.

In the Eurozone, the euro finished the week on the slide against sterling which has continued into this morning. This was despite good German data which showed that German manufacturing has enabled the country to return to pre-crisis levels for exports of goods, with renewed demand for German cars and machine tools. There seems to be a feeling that Germany is carrying the rest of Europe on its own with Greek, Portuguese, Irish, Italian and Spanish debt interest rates all rising sharply. Today sees Purchasing Managers Index (PMI) data released today for various member states. PMI data is generally seen as a good barometer for industrial trends.

The US dollar rallied last week due to poor US data and losses on equity markets around the globe. The number of new claims for unemployment benefits unexpectedly jumped to 500,000. In addition, a key measure of manufacturing production showed a further than expected decline. As a result of this poor data, there are yet again concerns over the state of the US recovery and as such - the global recovery as a whole. With a stalling housing market and poor economic data expect this week's trading to revolve around risk aversion as investors look to avoid unnecessary risks to their investments.

In Asia the Japanese government increased pressure on the Bank of Japan to try to stop the increase of the Japanese yen. The strong yen is hurting Japanese exports, making them less competitive abroad and has caused the stock market to fall, with the Nikkei falling nearly 2% on Friday. In Australia we have the spectre of a hung parliament with whichever party who manages to form a government very dependent on the 4 independent members of parliament. This is likely to lead to some uncertainty for the Australian economy and the Australian dollar.

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