Sterling slips due to concerns over economic growth

Published: 21 April, 2011

Sterling weakened by 1% yesterday against the euro after minutes from the Bank of England's last meeting showed policymakers were concerned over economic growth.

Currency rates - April 21

EURO/GBP - 1.1274

US$/GBP - 1.6479
CHF/GBP - 1.4582
CAN$/GBP - 1.5620
AUS$/GBP - 1.5318
ZAR/GBP - 11.1295
JPY/GBP - 135.096
HKD/GBP - 12.8094
NZD/GBP - 2.0542

SEK/GBP - 10.0438
US$/EURO - 1.4611

The committee voted 6-3 in favour of keeping rates on hold citing that data over the previous month had "probably been to the downside". Markets pushed back expectations of an interest rate rise to later in the year, which was the main driver of sterling's fall. The next major piece of data is retail sales which are released later today.

In the euro zone, the euro hit a 15 month high against a weak US dollar gaining 1.4% due to high risk appetite and a better than expected bond auction from Spain which was welcomed warmly by investors. Business activity data also showed that Germany and France continue to outperform the rest of the region, helping to support European Bank rate hike expectations in the short term.

The US dollar fell against sterling and the euro, despite the fact that US stocks jumped on Wednesday as optimism about the economic recovery rose on a wave of strong earnings and profit outlooks. With the Bank of Japan and U.S. Federal Reserve expected to keep their monetary policy ultra-loose for the time being, the US dollar and Japanese yen have become the currencies of choice for the carry trade - the strategy of use cheap loans to fund investments in higher yielding assets. In addition, a weaker US dollar tends to boost the attractiveness of commodities, which are mostly priced in the U.S. currency. Home sales came in better than expected.

Elsewhere the Australian dollar extended gains against the U.S. dollar and rose to a fresh high yesterday amid rising risk appetite. Thailand increased the one-day bond purchase rate for the third time this year which strengthened the Thai bhat by 0.3% against the dollar.

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