Bank holiday causes sterling to slip

Published: 03 May, 2011

Sterling fell against the euro on Friday and slipped against the US dollar as thin trading over the UK bank holiday triggered relatively large movements in the sterling exchange rate.

Currency rates - May 3

EURO/GBP - 1.1216
US$/GBP - 1.6579
CHF/GBP - 1.4345
CAN$/GBP - 1.5754
AUS$/GBP - 1.5238
ZAR/GBP - 11.031
JPY/GBP - 134.27
HKD/GBP - 12.874
NZD/GBP - 2.0640
SEK/GBP - 10.010
US$/EURO - 1.4772

Sterling had been over $1.67/£1 heading into the extended weekend, but news over Osama Bin Laden's death triggered US dollar strength in the immediate aftermath of the announcement, but this has now faded. Key events this week in the UK include UK manufacturing, construction and services PMI and also this month's Bank of England interest rate decision. Markets are pricing in a rate rise in November, but with sterling one of the least favoured currencies, this expectation could easily be pushed back towards next year.

In the euro zone, the key piece of data set to drive exchange rate movements this week is the ECB's interest rate decision and 'post-match' press conference. Since last month's 0.25% hike, there has been no let up in further talk of interest rate hikes, so markets are expecting "vigilance" from ECB President Jean-Claude Trichet indicating that the ECB is still on track for an interest rate hike in July. The calls for Greek restructuring seem to have calmed down which will drop the perceived need of a Spanish and Italian bail out.

In the USA, US markets and the US dollar saw a boost on the news of Bin Laden's death on Monday but this eased on the realisation that this would have no real effect on global stability and risks. The US dollar slipped to a 17 month low against the euro as lower than expected GDP figures on Friday left prospective US monetary policy lagging behind Europe. After the softer figures, key unemployment data will be closely watched later in the week for any further signs of the state of the US economy.

Elsewhere, the Canadian dollar gained against major counterparts after the Conservative party secured a significant majority in the election - beating the number of seats needed to convert their current minority government into a majority one by a significant margin.

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