Sterling hits nine-month high against US dollar

Published: 04 November, 2010

Sterling hit a nine-month high against the US dollar yesterday after stronger than expected services sector data.

Sterling hit a nine-month high against the US dollar yesterday after stronger than expected services sector data reduced the prospects for further quantitative easing ahead of today's Bank of England Monetary Policy Committee meeting.

Currency Rates
EURO/GBP - 1.141
US$/GBP - 1.615
CHF/GBP - 1.568
CAN$/GBP - 1.626
AUS$/GBP - 1.606
ZAR/GBP - 11.059
JPY/GBP - 130.83
HKD/GBP - 12.522
NZD/GBP - 2.053
SEK/GBP - 10.609
US$/EURO - 1.415
HUF/GBP - 310.12

Sterling hit the nine-month highs throughout the day, and spiked by nearly one cent to hit a high of $1.6175/£1 in late trading when the US Federal Reserve announced a further $600bn of quantitative easing ("QE"). Sterling had a positive day aside from the US QE after the PMI figures showed the services sector was expanding and strong demand from Asian banks boosted the currency. Sterling also gained 0.3% against the euro as large movements of euro into sterling registered in the exchange rate. Key data tomorrow is the Bank of England's interest rate decision, which is widely expected to stay as it was last month.

In the Euro zone, it was a quiet day in the region for data, however the Interbank lending rate (i.e. the interest rate at which banks lend to one another) hit a 16 month high over uncertainty as to when the European Central Bank would pull back available credit. This return to higher rates marks the start of a return to 'normal' lending conditions, but it could simply be a reluctance to lend ahead of tomorrow's ECB meeting in which a clearer framework could be outlined for removal of the credit facility. Following the Fed announcement, the euro jumped above $1.41/€1.

In the USA, the big news was that the Federal Reserve announced a further $600bn of quantitative easing in an attempt to stimulate the economy. The first round of purchases worked, but this 2nd round was seen as an attempt to tackle unemployment and provide a much needed boost to bring the headline rate of unemployment back from 10%. The news prompted wild volatility, with sterling/ US dollar jumping by a cent before falling back and the S&P 500 stock markets dropped by 0.8%. The general trader reaction was positive, with many blaming a "buy on the rumour, sell on the news" approach that saw stock markets and the US dollar drop.

Currencies across the board strengthened against the US dollar following the Federal Reserve's announcement to pump further funding into the US economy, with the Canadian dollar rising to CAD 1.0065/US$1.

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