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Sterling falls due to confidence drop in UK recovery

Published:  16 June, 2011

Today's currency update shows sterling fell to a three week low against the US dollar yesterday, as investors bought into safe-haven currencies.

Today's currency update shows sterling fell to a three week low against the US dollar yesterday, as investors bought into safe-haven currencies.

Currency rates - June 16

EURO/GBP - 1.1439
- 1.6151
- 1.3759
- 1.5862
- 1.5344
- 11.057
- 130.026
- 12.596
- 2.0131
- 10.542
- 1.4121


Furthermore, poor UK data saw confidence drop in the UK recovery that left sterling vulnerable to more losses in the near term. Figures showed that the number of those claiming unemployment benefit rose sharply, jumping to 19,600 against an expectation of 7,000 and the biggest jump since July 2009. Earnings growth also slipped that added to the view that UK interest rates would stay on hold into 2012. Sterling did gain against the euro as Greek related market turmoil continued to impact on the single currency. Out today we have retail sales figures that are expected to show a decline from the previous month.

In the euro zone, the euro had the worst day in a month, hitting a two-and-a-half week low against the US dollar as investors panicked about Greece's debt crisis and its potential impact. Ongoing disagreement over a new bailout plan also caused concern for investors as an FT report stated that the German inspired bailout plan could require European governments to provide an extra €20bn. Analysts also stated that a Greek national strike against austerity measures was also keeping the euro lower as it highlighted the country's outrage against efforts to reign in its debts.

In the USA, a report showed that US inflation rose more than expected in May to hit the largest increase in three years which helped strengthen the dollar. However, European events continued to dominate market sentiment and there was poor data on manufacturing, industrial production and homebuilder confidence which exacerbated concerns that the economy is shrinking.

Elsewhere, the Australian dollar strengthened as the Reserve Bank of Australia governor said an increase in interest rates is still needed to restrain inflation. In addition, the Canadian dollar hit the highest level against the euro in 3 weeks following the issues in the euro zone. However, it dropped against the US dollar following data that showed a disruption to manufacturing following the Japanese earthquake/ tsunami.


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