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Sterling falls sharply due to talks of further quantitative easing

Published:  17 November, 2010

Sterling fell sharply yesterday after Bank of England governor Mervyn King signalled that the Bank of England could launch a further programme of quantitative easing if needed.

Currency Rates
EURO/GBP - 1.177
US$/GBP - 1.586
CHF/GBP - 1.580
CAN$/GBP - 1.626
AUS$/GBP - 1.630
ZAR/GBP - 11.217
JPY/GBP - 132.33
HKD/GBP - 12.300
NZD/GBP - 2.077
SEK/GBP - 11.088
US$/EURO - 1.347
HUF/GBP - 326.93

Earlier in the day, data showed that UK inflation came in higher than expected at 3.2%, which gave sterling a boost. However, governor King's comments wiped out these earlier gains with sterling falling to a low of $1.5843/£1 from a high of $1.6080/£1. Against the euro, sterling slipped from a high of €1.1824/£1 to a low of €1.1733/£1. A number of automatic trades triggered against the US dollar, which exacerbated the volatility and saw sterling down 1.1% on the day. Out today, we have the minutes from the Bank of England's Monetary Policy Meeting two weeks ago, which could see sterling drop even further if any other members join Adam Posen in voting for more quantitative easing.

In the Euro zone, the euro had a surprise boost yesterday as the 'ZEW' investor sentiment figure came in much better than expected for the region which marginally helped the euro. However, Ireland and Portugal were still in the spotlight and Euro zone finance officials meet today to discuss a bailout - despite resistance from the Irish government to state wide help from the ECB, suggesting that a bank bailout is all that is needed.

In the USA, the US dollar hit a 7 week high against the euro as concerns over a deepening debt crisis in the Euro zone saw the single currency drop to below $1.35/€1. The US dollar also strengthened against other major currencies as a result of risk aversion. In terms of data, factory gate inflation did not increase as much as had been expected - disappointing the markets with a 0.4% against an expectation of 0.7%. Data out tomorrow includes consumer inflation which is expected to come in at 0.3% on the month. Call in now for a live exchange rate.

Elsewhere, the Canadian dollar took a tumble yesterday after concerns over falling global demand for commodities impacted expectations for Canada's major export. A move by China to stem its ballooning growth would see demand for commodities drop and impact Canada's economy.

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