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Sterling falls with gloomy UK outlook

Published:  03 November, 2010

Sterling fell to one-week lows against the euro and US dollar as investors reacted to the gloomy outlook in the UK.

Currency Rates
EURO/GBP - 1.143
US$/GBP - 1.604
CHF/GBP - 1.568
CAN$/GBP - 1.617
AUS$/GBP - 1.608
ZAR/GBP - 11.038
JPY/GBP - 129.38
HKD/GBP - 12.438
NZD/GBP - 2.074
SEK/GBP - 10.687
US$/EURO - 1.403
HUF/GBP - 310.21

Sterling hit $1.4873/ £1 and €1.0966/ £1 as Tuesday's political opinion polls and a fresh round of poor economic data continued to weigh on the pound. British manufacturing output unexpectedly showed a decline of 0.9% - the largest monthly drop since August last year, and clashing with the market's expectations of a rise. Relatively positive comments from a member of the Bank of England offered sterling some support, but Ian Stallard (a senior FX analyst from investment bank BNP Paribas) stated today that the short term outlook for the pound remains negative. He expects the pound to extend losses towards $1.44/ £1 in the next few weeks. It is a relatively quiet day for economic data today, with some consumer inflation expectation data out.

In the Euro zone, French and Italian industrial production outperformed expectations and showed expansion of 1.6% and 2.6% respectively. In addition, German inflation data was revised upwards to show prices had risen by 0.4% last month in the region. This data helped the euro strengthen by 0.3% against sterling. Greece is still an issue, and over the next few weeks they must make some rather large debt repayments - any problems will give markets the jitters again, but for now this is on the back burner. Today, we have French unemployment data and a monthly bulletin from the European Central Bank.

In the USA, there was little data out yesterday and the US dollar strengthened against sterling off the back of a poor UK performance. It was a rather mixed day from an analysis perspective. Citibank suggested that from a technical perspective (looking at trends on graphs) the dollar is poised to fall back down to $1.57/ £1 but as mentioned above, BNP Paribas (taking a more fundamental view of economic data) feel it is likely to go the other way. This goes to show how important it is to be in touch with a currency strategist at an early stage, as things really can go either way at the moment.

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