Sterling falls against US dollar and hits high against euro

Published: 12 July, 2011

It was a volatile day for sterling yesterday as it fell to a five month low against the US dollar, but surged against the euro, hitting a high of €1.1368/£1.

Currency rates - July 12

EURO/GBP - 1.1388
US$/GBP - 1.5849
CHF/GBP - 1.3289
CAN$/GBP - 1.5431
AUS$/GBP - 1.4996
ZAR/GBP - 10.924
JPY/GBP - 126.62
HKD/GBP - 12.357
NZD/GBP - 1.9441
SEK/GBP - 10.509
US$/EURO - 1.3921

Sterling dropped to $1.59/£1 against the US dollar, but made advances against the euro as investors speculated that Italy may be next in the queue for an ECB bailout. It also hit a three month low versus the yen as investors looked for safer haven currencies due to concerns over the euro zone. Out later today there is consumer price inflation data which is likely to show inflation creeping up, which will put mounting pressure on the Bank of England to tighten monetary policy.

In the euro zone, the euro plunged yesterday as concerns grew that the debt crisis in the region could spill over into Italy. In an emergency meeting of European finance ministers, policymakers were meeting to come up with a plan for a second Greek bail out. A Financial Times report that some European leaders would consider letting Athens default on some of its bonds added to market anxiety. The risk of contagion - i.e. the crisis spreading to Italy - was the key driver though and this saw other peripheral bond yields jump.

In the USA, the US dollar strengthened against the euro as the euro-region debt crisis worsened, hitting a seven week high against the single currency. Analysts believe that the US dollar's 12% slide over the last year is set to come to an end as the currency regains its safe haven status in the wake of a resurgent European debt crisis. As a result, many analysts believe that sterling could be on track for the low $1.50's again.

Elsewhere, Chinese imports grew at the slowest level in 20 months which added to global concern yesterday on the back of the resurgent European crisis and dented commodity backed currencies. Commodity backed currencies like the Australian dollar rely on demand from Chinese industry, and as such they suffered in the wake of the flight to 'safe haven' currencies like the US dollar, Swiss franc and yen.

Smart Currency Exchange is a currency partner to Harpers Wine and Spirit. Harpers Wine and Spirit has teamed up with Smart to provide readers with a free bespoke currency service. www.SmartWineSpirits.com

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