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Sterling broke through $1.60/£1 for first time in two months

Published:  08 October, 2010

Sterling temporarily broke through the $1.60/£1 level against the US dollar for the first time in two months as the Bank of England yesterday held off from further quantitative easing.

Currency Rates
EURO/GBP - 1.137
US$/GBP - 1.583
CHF/GBP - 1.531
CAN$/GBP - 1.611
AUS$/GBP - 1.622
ZAR/GBP - 10.971
JPY/GBP - 130.44
HKD/GBP - 12.283
NZD/GBP - 2.118
US$/EURO - 1.391
HUF/GBP - 312.46

Sterling temporarily broke through the $1.60/£1 level against the US dollar for the first time in two months as the Bank of England refrained from adding any additional monetary stimulus to the economy at yesterday's Monetary Policy Committee meeting.

Sterling gave back the earlier gains as investors took profits and looked ahead to the minutes of the meeting, which many expect to show a three-way split between raising interest rates, doing nothing and pumping more money into the economy. The minutes are released on the same day as the government's spending review decisions leaving the possibility of a nightmare day for sterling on October the 20th. House prices woefully disappointed yesterday morning with a survey by the Halifax showing that prices dropped by 3.6% on last month, but manufacturing data increased marginally. Data today includes wholesale price inflation which will be watched closely.

In the Euro zone, the European Central Bank kept interest rates on hold at record lows for another month. ECB President Jean-Claude Trichet made clear that excess currency volatility was best avoided in order to help the global recovery. Currency is a key topic on the agenda at this weekend's IMF and World Bank meeting and also the G7 summit today. With domestic growth low, many countries try to intentionally keep their currency weak to encourage exports. This situation led to de-facto trade wars during the 1930's and exacerbated the Great Depression. Avoiding these "currency wars" is a key aim of the IMF, World Bank and G7. There is no real data out today, so expect sentiment based trading to continue.

In the USA, the US dollar continued to lose ground yesterday as it loses favour amongst global investors as many are now almost certain that the Federal Reserve will start pumping more money into the US economy in the next few weeks. Sentiment was poor despite figures showing that new claims for unemployment fell to the lowest for three months and retail sales by 2.8% against an expectation of 2.1%. Out today, there is the key Non-Farm Payroll figures and also the unemployment rate.

Elsewhere, the Japanese finance minister made clear in a statement that the Japanese government maintains its stance of actively looking to curb yen strength. However, despite hovering around 15 year highs against the US dollar, no action has been taken since intervening on September 15. It will be interesting to see what the IMF's response to this active management is after their meeting.

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