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Currency update, August 25: sterling falls to one month low

Published:  25 August, 2010

Yesterday sterling fell to a one month low against the US dollar and ended four days of gains against the euro over fears of a double-dip recession.

Yesterday sterling fell to a one month low against the US dollar and ended four days of gains against the euro over fears of a double-dip recession.

Currency Rates

EURO/GBP - 1.214
US$/GBP - 1.544
CHF/GBP - 1.587
CAN$/GBP - 1.634
AUS$/GBP - 1.738
ZAR/GBP - 11.351
JPY/GBP - 130.61
HKD/GBP - 12.008
NZD/GBP - 2.188
EURO/US$ - 1.271
HUF/GBP - 342.56

Martin Weale, a Bank of England official stated in the Times, "The UK faced a significant risk of falling back into recession." If risk aversion continues to weigh on the market, sterling could suffer further against the US dollar. Sterling will be dictated by risk trends today as there is limited economic data due for release.

The euro still remains under pressure following Axel Weber's comments last week. Further comments from the renowned economist Joseph Stiglitz also weighed on the euro as he fears that the European economy could drift back into a downturn due to efforts to reduce their budget deficits. Today sees the release of German IFO expectations data which is one of the country's key business sentiment surveys.

The US dollar has been well supported due to renewed risk aversion as financial markets continue to cope with the possibility that the economic recovery is running out of steam. There was further evidence yesterday that the US housing market is stalling as existing home sales were much weaker than expected at 3.83 million in July against a market expectation of 4.65 million. This was the worst figure for 15 years. Data on new home sales and durable goods orders are due for release today.

Global equities and commodities also fell sharply as investors sought the safety of government debt. This sent UK, German and US bond yields to a record lows. Further evidence of investors exiting risky assets can be seen in the Japanese yen's rise against the US dollar which is now trading at a 15-year high.

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