Sterling plummets due to UK riots

Published: 10 August, 2011

Sterling plummeted against the US dollar and the euro yesterday as investors became concerned over poor manufacturing data and spreading UK looting and violence.

Sterling plummeted against the US dollar and euro yesterday as investors became concerned over poor manufacturing data and spreading UK looting and violence.

Currency rates - August 10

EURO/GBP - 1.1334
US$/GBP - 1.6260
CHF/GBP - 1.1728
CAN$/GBP - 1.5971
AUS$/GBP - 1.5708
ZAR/GBP - 11.6620
JPY/GBP - 124.75
HKD/GBP - 12.6940

NZD/GBP - 1.9504
SEK/GBP - 10.4982
US$/EURO - 1.4326

Manufacturing figures also unexpectedly showed a 0.4% contraction against an expectation of a 0.2% gain and the trade deficit unexpectedly widened. At the end of last week, investors saw the UK as a safe haven, but with all the damage being done markets are concerned that this will impact the UK's already weak growth even further. Later today we have the Bank of England's inflation report, in which the Bank is expected to downgrade growth forecasts.

In the euro zone, the euro strengthened against the US dollar yesterday on the back of the European Central Bank buying Spanish and Italian government bonds. German exports slipped unexpectedly and the euro dropped further against the safe-haven Swiss franc. The euro has fallen by roughly 15% against the franc so far this year. Analysts speculated that the Swiss franc could reach parity (1:1) against the euro.

In the USA, the markets rebounded off yesterday's lows as investors focussed on Tuesday evening's meeting of the Federal Reserve. Recent manufacturing and employment data in the country has pointed to a slowdown in the world's biggest economy, leading some to fear the country could slip back into recession. With interest rates at near zero and the last round of bond purchases having failed to stimulate credit conditions, some are unsure what options the Fed has left. In the end, the it pledged to keep interest rates on hold until at least 2013.

Elsewhere, the Swiss franc soared on Tuesday to record highs for a third straight day against the euro and dollar as concerns about the global economic outlook and a rout in stock markets drove investors to safety. In addition, the Japanese yen, which also tends to benefit in times of market stress, breached 77 yen per dollar, above levels that triggered official intervention from Tokyo last week.

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