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Another fall for sterling

Published:  06 January, 2011

Sterling fell against the US dollar yesterday as poor UK data contrasted with better than expected US economic data.

Currency rates, January 6:
EURO/GBP - 1.1830
US$/GBP - 1.5540
CHF/GBP - 1.5017
CAN$/GBP - 1.5435
AUS$/GBP - 1.5550
ZAR/GBP - 10.455
JPY/GBP - 129.06
HKD/GBP - 12.084
NZD/GBP - 2.045
SEK/GBP - 10.534
US$/EURO - 1.3133

Sterling dropped by 0.6% to a low of $1.5452/£1 after a PMI survey of construction purchasing managers showed that activity in the sector fell by more than expected. With the poor weather in December, a drop in construction activity should not come as too much of a surprise but yesterday's fall against the US dollar highlights the fragility that investors feel is facing the UK economy as the VAT hike and government austerity measures take effect. Sterling gained against the euro as, despite poor construction activity, the UK economy is showing a resilience that makes it a far more attractive proposition than the euro - especially given the debt crisis in the region that could cause further issues.

In the euro zone, the single currency continued to be hampered by concerns over debt in the region and fell by 0.6% against the US dollar and 0.5% against sterling. News that the Swiss National Bank had stopped accepting Irish bonds as collateral dented sentiment towards the euro, and Portugal came under increasing pressure from international debt markets amid concerns that the country would be forced to accept a bailout akin to Ireland and Greece.

In the USA, figures showed that new orders from US factories rose unexpectedly in November and minutes from the Federal Reserve's FOMC interest rate meeting showed that the Fed is content to remain loose with monetary policy. Data showed that the US economy added 297,000 jobs in December which added to an already strengthening US dollar. Many analysts remarked that the US recovery feels more genuine and not just driven by stimulus money.

Elsewhere, the Australian dollar continued to suffer as the floods caused concern amongst analysts. Some analysts believe that mining operations in Queensland will be shut down for two to three months as the flood waters subside. With the Australian economy heavily dependant on commodities trading, this is likely to be a major blow.

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