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Sterling recovers against US dollar after seven week low

Published:  25 May, 2011

Sterling gained by 0.5% against the US dollar yesterday morning, recovering from an earlier seven week low.

Sterling gained by 0.5% against the US dollar yesterday morning, recovering from an earlier seven week low.

Currency rates May 25

EURO/GBP - 1.1510
- 1.6145
- 1.4198
- 1.5827
- 1.5411
- 11.361
- 132.25
- 12.556
- 2.0364
- 10.290
- 1.4038


It came on the back of investors speculating over the scope and extent of a potential downgrade of UK banks by rating agency Moody's. Many investors covered short positions in order to avoid the volatility of a potential announcement and this helped the pound recover slightly, whilst mixed UK public sector borrowing figures had little or no effect. Data showed that net borrowing dropped from last month's £15.6bn to £7.7bn, but this was higher than the £5bn that had been forecast by the markets. Sterling still remains vulnerable against the US dollar as it is liable to track euro weakness against the US currency in the wake of the next round of the euro zone debt crisis. 

In the euro zone, the euro edged up from a two-month low against the dollar on Tuesday, helped by stronger than expected German economic data, but the gains are likely to be short lived in the wake of a resurgence in the European debt crisis. The euro has dropped by 5% since early May, taking a hammering on speculation that the Greek bailout will need restructuring and on fears of a contagion spread to Spain and Italy.

In the USA, the US dollar slipped yesterday as strong data helped to boost risk appetite and reverse (to an extent) Monday's moves. Figures showed that purchases of new houses rose to the highest level this year. Sales increased 7.3 percent to a 323,000 annual pace last month, surprising many investors who had expected poor figures. Combined with the better than expected German figures, this saw less panic from investors and as such, they moved out of US dollars into other 'riskier' currencies. 

Elsewhere, the New Zealand dollar gained more than 1 percent against the US dollar after a quarterly survey on behalf of the Reserve Bank of New Zealand showed inflation expectations in the country rose in the second quarter, boosting expectations that the central bank would look to hike rates in the coming months. In addition, the Australian dollar was up 0.3% to $1.0542, off a one-month low of $1.0478 hit on Monday.

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