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Investors sell the single currency

Published:  10 November, 2010

Sterling rose to a six week high against the euro yesterday after concerns over debt in the Euro zone caused investors to sell the single currency.

Currency rates, November 10:
EURO/GBP - 1.159
US$/GBP - 1.599
CHF/GBP - 1.553
CAN$/GBP - 1.605
AUS$/GBP - 1.591
ZAR/GBP - 11.974
JPY/GBP - 130.83
HKD/GBP - 12.395
NZD/GBP - 2.050
SEK/GBP - 10.821
US$/EURO - 1.377
HUF/GBP - 317.08

Sterling's gains were limited ahead of today's Bank of England inflation report and BOE Governor Mervyn King's post report press conference. Manufacturing production came in slightly worse than expected which also held sterling back. The Bank Governor is infamous for bringing sterling back down to earth after a positive run, and now has quite a reputation for causing a sterling sell-off every time he makes a public appearance. As such, this is the key piece of data today and is likely to cause significant volatility.

In the Euro zone, worries over the Irish political situation grew after rumours surrounding a political standoff saw investors sell Irish government bonds. The issue revolves around the new Budget, which is being voted on next month. There has been strong opposition to the proposals and concern that the significant cuts that are needed will not be fully financed by the plans over the next few years. There is a variety of industrial data out tomorrow but the debt crisis is likely to be the real market mover.

In the USA, gold and oil (both priced in US dollars) surged to new highs yesterday - gold hitting a new all time high, and oil hitting a two year high. This was driven by inflation expectations as the US dollar recovered ground against the euro following the re-emergence of the debt crisis in Europe. In terms of data, it was fairly light yesterday with one measure of economic optimism showing a slight fall on last month. Out today, there is US unemployment claims and the US trade balance figures.

Elsewhere, backlash against the US Federal Reserve's decision to pump $600bn into the economy is growing. With low interest rates in the USA, 'Cheap' money is borrowed and invested in emerging markets. This causes inflation and destabilisation and with the Aussie dollar, Canadian dollar and US dollar all hovering around parity, something has to give at some point.

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