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Currency update, September 15 - sterling performs well as UK inflation beats expectations

Published:  15 September, 2010

Sterling performed well against the US dollar yesterday as UK inflation beat expectations and helped eased concerns that the Bank of England would increase their programme of Quantitative Easing.

Currency Rates
EURO/GBP - 1.192
US$/GBP - 1.546
CHF/GBP - 1.550
CAN$/GBP - 1.593
AUS$/GBP - 1.650
ZAR/GBP - 10.969
JPY/GBP - 131.70
HKD/GBP - 12.013
NZD/GBP - 2.110
US$/EURO - 1.297
HUF/GBP - 335.47

By close of play yesterday, sterling had hit a daily high of $1.5585/£1 against the US dollar as the stubborn inflation data saw investors back sterling as speculation grew that the US Federal Reserve would look to stimulate the US economy. Yearly inflation moved back up above 3.0%, coming in at 3.1% despite expectations that price growth would tail off as the austerity packages take effect. The Bank of England seems rather obsessed with the inflation figures and seems to be using the data as an excuse not to implement measures to help stimulate the economy. This was alluded to by many analysts as poor house price data demonstrated that the economy is still in trouble. A survey by the Royal Institute of Chartered Surveyors showed the biggest one month fall in house prices since June. Out later today there is unemployment data and Bank of England governor Mervyn King speaks to the Trades Union Congress in Manchester.

In the Euro zone, it was a mixed day for data with ZEW economic sentiment, industrial production and French inflation data all underperforming expectations. The key figure of economic sentiment came in at -4.7 against an expectation of 10.7 as a result of concerns over the European banking sector in the past few weeks. Despite this, the euro strengthened to a one month high against the US dollar gaining over 1% to hit $1.3031/€1 after breaking through a key technical level on the exchange rate graphs. In terms of data, there is yearly and core inflation data for the Euro zone released today.

In the USA, retail sales data showed the biggest growth in the last 5 months with figures coming in as expected at 0.4% growth and core sales up 0.6% on the month. This saw higher yielding 'riskier' currencies benefit including the Australian dollar which jumped to a 10 month high against its US counterpart.

Elsewhere, the Japanese yen strengthened to a 15 year high against the US dollar of JPY 83/ $1 - with the all time high of JPY 79.75/ $1 not far off on the horizon. With much of Japan concerned over the impact that an incredibly strong yen will have on their export led economy, victory by Prime Minister Naoto Kan in yesterday's leadership election had a huge effect. The PM beat rivals who had been arguing for moves to weaken the currency and as a result of his victory; this is unlikely to happen and attracted buyers.

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