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Sterling stays high as euro suffers due to regional debt

Published:  12 November, 2010

Sterling hit a seven week high against the euro on Thursday as the single currency suffered on concerns over periphery debt in the region.

Currency Rates
EURO/GBP - 1.179
US$/GBP - 1.604
CHF/GBP - 1.564
CAN$/GBP - 1.625
AUS$/GBP - 1.628
ZAR/GBP - 11.255
JPY/GBP - 131.41
HKD/GBP - 12.445
NZD/GBP - 2.073
SEK/GBP - 11.059
US$/EURO - 1.36
HUF/GBP - 326.10

This saw sterling extend the gains made after Wednesday's Bank of England Inflation report to hit a high of €1.1822/£1. The report estimated that inflation will remain high into next year, and as such the risk of Quantitative Easing fell. However, sterling failed to gain against the US dollar as it emerged that UK banks have around $147bn worth of exposure to Irish bonds - a fact that saw RBS shares fall yesterday. As a result, some analysts expect traders to start selling sterling/ US dollar which would see the rate drop.

In the Euro zone, worries over the Irish political situation continued to see investors look for shelter in other currencies. The country is struggling to raise money on the bond markets and the Irish government has to pay very high returns on bonds. Many believe that both Ireland and Portugal are on the brink of being bailed out in a similar vein to Greece. Out tomorrow, there is French, German, Italian and European GDP figures which are expected to drop so call in now - especially if you are moving euros into sterling, as the euro could be poised to drop rapidly in the coming weeks.

In the USA, it was a quiet day for data yesterday as it was a public holiday for Veteran's day and as such there were no releases. Most of the US dollar's movement came off the back of European debt concerns that saw euro fall to $1.3642/€1 - a 5 week low. One analyst even suggested that it might hit $1.32/€1 by the end of the year. The US dollar strengthened against most major currencies after a report showed that the Federal Reserve may pull back on the amount of Government bonds that they committed to purchase.

Elsewhere, the Brazilian real and Mexican peso fell yesterday as investors grew weary about the growth of China's economy and rising tensions over currency imbalances. The Chilean peso rose however as copper prices rose. China announced that inflation hit a 25 month high in October as industrial production grew by 13% for the month.

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