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Currency update, September 3: sterling falls due to recovery concerns

Published:  03 September, 2010

Sterling fell against the euro and US dollar yesterday as weaker than forecast housing and construction data added to concerns that the UK recovery may be faltering.

Currency Rates
EURO/GBP - 1.201
US$/GBP - 1.541
CHF/GBP - 1.565
CAN$/GBP - 1.626
AUS$/GBP - 1.695
ZAR/GBP - 11.124
JPY/GBP - 129.90
HKD/GBP - 11.982
NZD/GBP - 2.154
EURO/US$ - 1.282
HUF/GBP - 341.17

House price data showed that house prices fell by 0.9% last month against an expectation of a 0.3% drop. Construction PMI data also came in much worse than expected. This added to the view of many analysts and investors that the recovery that the UK has seen over the first half of the year is not sustainable and the UK will follow the USA in faltering after an initial period of recovery. After a period of weak data, there are also concerns that the new austerity measures will impact on UK growth. After briefly recovering against the US dollar on Wednesday, a German bank was responsible for selling large quantities of sterling which saw sterling fall against the US dollar and drop to a 3 week low against the euro.

In the euro zone, European data came in very much as expected with quarterly GDP remaining unchanged at 1%, monthly PPI data for the region showing the expected 0.2% improvement and the European Central Bank keeping interest rates on hold at 1%. The Central Bank surprised a few people with their decision to keep policy unchanged, but the press conference later in the afternoon provided a little more clarity. In terms of data today, there is final services PMI data out today and monthly retail sales data which is expected to show a mild 0.3% increase on last month.

In the USA, unemployment claims fell marginally from last week coming in at 472,000 - a 6,000 drop from last time. Pending home sales data also showed a surprising jump showing 5.2% more than last month against an expectation of a decline. All eyes are on today's Non-Farm payroll data. After a shock 131,000 decline in July, the general consensus is for another 100,000 drop in the level of employment this month. The employment rate is also released at the same time. Both of these figures have a market moving effect so get in touch sooner rather than later to take advantage of the volatility before and after the release.

Elsewhere, the Brazilian economy is expected to show year on year expansion of 7.6% reflecting stronger than expected household spending and strong Chinese demand for commodities over the last year. With the Brazilian base interest rate at 10.75%, many are expecting further aggressive hikes to keep the economy in check.

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