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Sterling lowers against dollar - analysts lacklustre over UK recovery

Published:  23 May, 2011

Sterling has started the week slightly lower against the US dollar, having tracked the euro's decline against the US currency over the weekend.

Sterling has started week slightly lower against the US dollar, having tracked the euro's decline against the US currency over the weekend.

Currency rates

EURO/GBP - 1.1518
- 1.6145
- 1.4251
- 1.5796
- 1.5294
- 11.278
- 131.52
- 12.556
- 2.0445
- 10.271
- 1.4027

Sterling is hovering just above the €1.15/£1 mark after concerns over the euro zone debt crisis pushed the single currency lower. The subsequent drop in risk appetite has seen demand for the safe haven US dollar and the FTSE 100 open lower this morning. Despite data last week showing higher than expected inflation and retail sales figures in the UK, analysts are still lacklustre over the UK recovery. The Bank of England's chief economist Spencer Dale said in an interview over the weekend that the MPC must start to tackle inflation by raising interest rates or risk damaging the economy and its own credibility.

In the euro zone, the euro continued to suffer on worries over a potential restructuring of Greek debt. Rating agency Fitch downgraded Greece's rating last week and Standard & Poor fanned the flames by doing the same to Italy over the weekend. A debt restructuring is the last resort for Greece, and the country's prime minister said that the country should push on with budget cuts to overcome the debt crisis.

In the USA, the US dollar starts the week at a 2 month high against the euro as the fragility of the debt crisis situation has a knock on effect on the risk appetite of investors. Markets are currently positioned to expect a further drop from the single currency, which would see sterling drop against the US dollar.

Elsewhere, markets are keeping a close eye on a fresh volcanic eruption in Iceland after travel and freight disruption caused shockwaves around the globe that cost the airline industry around £1bn. With so many fragile recoveries, similar disruptions are the last thing financial markets need.

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