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Sterling hit high against US dollar as Bank of England hold interest rates

Published:  05 November, 2010

Sterling strengthened to a nine-month high against the US dollar yesterday helped by the Bank of England's decision to keep interest rates and UK quantitative easing on hold.

Sterling strengthened to a nine-month high against the US dollar yesterday helped by the Bank of England's decision to keep interest rates and UK quantitative easing on hold.



Currency Rates
EURO/GBP - 1.139
US$/GBP - 1.619
CHF/GBP - 1.551
CAN$/GBP - 1.624
AUS$/GBP - 1.593
ZAR/GBP - 11.026
JPY/GBP - 130.90
HKD/GBP - 12.567
NZD/GBP - 2.040
SEK/GBP - 10.584
US$/EURO - 1.422
HUF/GBP - 311.52


The pound jumped to $1.6297/£1 and gained back lost ground against the euro hitting a high of €1.1448/£1. The Bank's decision not to make any changes was in stark contrast to the USA, where the Fed announced an addition $600bn of further asset purchases in an attempt to jump start the ailing recovery over there. Over here in the UK, sterling started the day well after an additional boost from house price data which showed that house prices rose by 1.8% in the last month against last month's 3% drop. Out today, there is wholesale price inflation figures which are significant ahead of consumer price inflation figures.


In the Euro zone, the European Central Bank kept interest rates on hold at 1% as expected and ECB president Jean-Claude Trichet made no major announcements regarding future interest rate policy. The euro slipped by 0.5% against sterling but broke through the $1.42/€1 barrier briefly as the US dollar had a poor day in the wake of the Fed's announcement. In terms of data, services figures and wholesale price inflation came in as expected. Out today, there is retail sales data and factory order figures from Germany.


In the USA, the US dollar had a poor day yesterday falling across the board. By purchasing government bonds, the Federal Reserve has pushed returns on those bonds down, driving investors to seek returns elsewhere. As a result, there is likely to be a return to 'carry trading' - where investors borrow cheap US dollars and invest in higher risk investments, such as commodities, emerging markets etc. As a result, the US dollar is set to weaken further. This is not a bad thing, as this will encourage exports. However, the US dollar's counterparts will not be too happy as their currencies become more and more expensive - expect to see some protectionism over the coming months as part of the "currency wars".


Elsewhere, the Australian dollar hit a 28-year high against the US dollar following the Fed decision. This saw the Aussie dollar go beyond the 'parity' rate of 1:1. Therefore, at the moment we have the Canadian, US and Australian dollar all trading at around 1:1, so it could get quite confusing!


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.



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