Confidence restored to investors

Published: 03 December, 2010

Sterling fell against the euro yesterday after bond buying by the European Central Bank restored a level of confidence to investors.

Currency rates, December 3:
EURO/GBP - 1.1819
US$/GBP - 1.5641
CHF/GBP - 1.5478
CAN$/GBP - 1.5694
AUS$/GBP - 1.5971
ZAR/GBP - 10.810
JPY/GBP - 130.86
HKD/GBP - 12.152
NZD/GBP - 2.067
SEK/GBP - 10.789
US$/EURO - 1.3228

Sterling fell by 0.7% against the stronger single currency to drop back below the €1.18/£1 level. Against the US dollar, sterling finished the day hovering around the $1.56/£1 level after earlier hitting a low of $1.5514/£1 against the US currency. Earlier in the day, figures showed that UK construction sector activity unexpectedly picked up in November, but stayed near to an eight month low meaning that the figures are unlikely to provide much of a boost to economic growth this quarter.

In the Euro zone, the bond markets settled yesterday after the European Central Bank stepped in to buy Irish and Portuguese bonds on the open market. This helped the countries, as this pushed yields down and therefore also pushed down the amount of interest that the respective governments would need to pay on the debt. Tuesday saw this figure spike to record highs for some countries, so the intervention of the central bank has helped calm the panic somewhat. In the ECB press conference, the central bank slowed the rate at which it will withdraw emergency funding.

In the USA, the US dollar fell against the stronger euro following a volatile day on the currency markets. The US dollar fell by around 0.7% against the single currency following the ECB's purchase of European bonds. News that the US unemployment claims rose by 26,000 this week did not help the US dollar either. Ahead of today's key Non-Farm Payroll figures (released at 1.30pm) this is not the news that many wanted to hear and demonstrates the continued fragility of the US economy.

Elsewhere, the South African rand strengthened by 2.2% against sterling yesterday after strong earnings forecasts from one of the country's leading petrochemical manufacturers saw investors buy into the currency. It takes the notoriously volatile currency to ZAR10.71/£1 so if you have any rand requirements, now is the time to act to stop it dropping any further.

Smart Currency Exchange is a currency partner to Harpers Wine & Spirit. Harpers Wine & Spirit has teamed up with Smart to provide readers with a free bespoke currency service. If you are making or receiving international payments and are interested in talking to Smart please go to: www.SmartWineSpirits.com to get a FREE no obligation quote or to download the Smart Wine and Spirit report. Alternatively call Smart on 0207 898 0500.

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