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Currency update, September 23: Sterling falls to four month low

Published:  23 September, 2010

Sterling fell to a four month low against the euro yesterday of €1.1662/£1 and a two month low against a basket of major currencies.

Sterling fell to a four-month low against the euro yesterday of €1.1662/£1 and a two month low against a basket of major currencies after the minutes of the Bank of England's recent interest rate meeting showed that the Monetary Policy Committee were more willing to consider a fresh round of quantitative easing.

Currency Rates
EURO/GBP - 1.168
US$/GBP - 1.566
CHF/GBP - 1.546
CAN$/GBP - 1.614
AUS$/GBP - 1.637
ZAR/GBP - 11.011
JPY/GBP - 132.47
HKD/GBP - 12.149
NZD/GBP - 2.140
US$/EURO - 1.339
HUF/GBP - 326.59

Members voted 8-1 to hold rates with Andrew Sentance yet again standing alone in his call for an interest rate hike of 0.25%. The general consensus was that there were risks on both sides and stood ready to respond in either direction, with many feeling that it was more likely that they would need to inject further stimulus in the coming months. There was one upside today for sterling. The pound jumped against US dollar early this morning and broke the $1.57/ £1 barrier but this was more a function of a relatively weaker US dollar than sterling strength. Out today we have mortgage approval data which is expected to show a decline.

In the Euro zone, the euro benefited from the prospect of further monetary stimulus in both the UK and the USA after the Federal Reserve left the door open to pump money into the economy if required. The euro saw a boost earlier in the week when Irish and Greek bond auctions saw higher demand than expected. With investors concerned over the UK and the US recoveries, the euro surged to a 5 month high of $1.3437/€1 and a 4 month high against sterling of €1.1662/£1. Out later today there is a raft of Purchasing Manager Index data for France, Germany and Europe as a whole.

In the USA, the financial markets were digesting the impact of the Federal Reserve's interest rate decision that was released on Tuesday evening. There was a slight change in the language used, which effectively ramped up the level of readiness for an increase in the 'accommodation' level that the Fed provides. Effectively, this prepared the markets for more quantitative easing without actually altering monetary policy. In terms of data, there is weekly unemployment claims and existing home sales data.

Elsewhere, New Zealand's current account balance deficit widened to 3% of GDP in the 2nd quarter, marking the first drop in cross-border commerce's contribution to economic growth since December 2008. This saw the NZ dollar drop off marginally against major counterparts as a result as investors looked elsewhere with concerns that the recovery there was stalling.

Smart Currency Exchange is a currency partner to Harpers Wine and Spirit. Harpers Wine and Spirit has teamed up with Smart to provide readers with a free bespoke currency service.