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Sterling drops off from three week high against US dollar

Published:  15 December, 2010

Sterling dropped from three week highs against the US dollar yesterday after strong US figures helped boost the US dollar.

Smart Currency Daily Rates 
Currency Rates
EURO/GBP - 1.1806
US$/GBP - 1.5753
CHF/GBP - 1.5118
CAN$/GBP - 1.5851
AUS$/GBP - 1.5856
ZAR/GBP - 10.7762
JPY/GBP - 132.198
HKD/GBP - 12.2450
NZD/GBP - 2.1018
SEK/GBP - 10.7189
US$/EURO - 1.3338

Sterling dropped from 3 week highs against the US dollar yesterday after strong US figures helped boost the US dollar. UK inflation came in at 3.3% - the highest for 6 months - and the 11th consecutive month that it has been more than 1% higher than the Bank of England's 2% target level. With GDP growth higher than trend and inflation persistently above targets, analysts now feel that there is only a small chance that the Bank of England would embark on a further round of Quantitative Easing, with many talking about the prospect of interest rate hikes early next year. With a VAT hike to 20% in the coming weeks, and a report released yesterday that suggested retailers would use the price rise as a smokescreen to increase prices beyond the 2.5% level, there are concerns that inflation will jump next year. You would expect sterling to strengthen as a result, but large selling of sterling by one Australian dollar buyer and thin trading volumes saw the pound drop. In the long run, yesterday was great news for the UK - especially given the USA has embarked on a 2nd round of QE and the Euro zone is in such a mess.

In the Euro zone, the euro slipped against the US dollar following the stronger than expected US retail sales figures. The euro started the week at $1.32/1 before hitting a high of $1.35/1 early on Tuesday and slipping back on the US figures. The focus revolved on the US economic situation and whether the Federal Reserve would add to the additional $600bn of asset purchases. Economic sentiment in Germany was stronger than expected yesterday.

In the USA, retail sales and producer price data came in far better than expected which gave the US dollar a welcome boost after falling on Monday to lows against counterparts. Figures showed that core retail sales jumped to 1.2% on last months 0.8% increase and producer prices rose by 0.8% against an expectation of 0.6%. Business inventories - i.e. the amount of goods being stocked - also fell, which indicates that the US recovery may be accelerating. Released today, there is US inflation data. Last month showed 0.0% change, so the figures will be quite interesting.

Elsewhere, the Australian dollar strengthened beyond the 1:1 level against the US dollar after the price of oil rose. Now is a great time to be moving Australian dollars into sterling or US dollars.

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