Sterling falls against dollar due to stagflation concerns

Published: 19 October, 2011

Sterling fell against the US dollar after UK annual inflation data broke above 5%, raising concerns over stagflation, that saw many investors start to build bets against the pound.

Currency rates - October 19

EURO/GBP - 1.1402

US$/GBP - 1.5716

CHF/GBP - 1.4147

CAN$/GBP - 1.5924
AUS$/GBP - 1.5389
ZAR/GBP - 12.5210
JPY/GBP - 120.87
HKD/GBP - 12.2498

NZD/GBP - 1.9732
SEK/GBP - 10.4232

AED/GBP - 5.784

US$/EURO - 1.3791

In addition, many expect today's Bank of England minutes to be particularly negative after the extra £75bn of Quantitative Easing announced earlier in the month saw sterling fall to a 14 month low against the US dollar. Key to the negative outlook for sterling is the fact that the price inflation is linked to commodity prices, not increased economic activity.

It was a busy day in the euro zone, with German investor sentiment falling to the lowest level for three years. In addition, credit rating agency Moody's warned that it may put a negative outlook on France's Aaa credit rating in the next three months if the costs for bailing out banks stretch the country's budget too much. There were also concerns over the supposed comprehensive plan to solve the sovereign debt crisis which is to be announced on Sunday.

In the USA, the US dollar continues to react to headlines and rumours over the euro zone sovereign debt crisis. The volatility is exacerbated by a number of large companies reporting earnings to the stock markets including Goldman Sachs that posted a 3rd Quarter loss. Wholesale price inflation came in higher than expected. With consumer price inflation out today, there could be a lower risk of a 3rd round of Quantitative Easing.

Elsewhere, in Norway the Norwegian krone has gained by 2.4% in the last month on expectations of higher interest rates after the finance minister indicated the potential for higher rates. Stresses from the debt crisis still remain but call in to ensure you don't lose out.

Supplied by Nick Ryder of Smart Currency Exchange, the currency partner to Harpers Wine and Spirit who have teamed up with Smart to provide readers with a free bespoke currency service. Go to www.smartcurrencybusiness.com/winespirit for more information or call on 0207 898 0500.

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