Sterling fell to seven-month low against euro yesterday

Published: 26 October, 2010

Sterling fell to a seven-month low against the euro yesterday after being weighed down by the prospect that the UK economy might be in store for further Quantitative Easing.

Sterling fell to a seven-month low against the euro yesterday after being weighed down by the prospect that the UK economy might be in store for further Quantitative Easing by the Bank of England and mortgage approval figures disappointed.

Currency Rates
EURO/GBP - 1.130
US$/GBP - 1.578
CHF/GBP - 1.533
CAN$/GBP - 1.608
AUS$/GBP - 1.592
ZAR/GBP - 10.911
JPY/GBP - 127.54
HKD/GBP - 12.250
NZD/GBP - 2.098
US$/EURO - 1.396
HUF/GBP - 309.29

Sterling hit a low of €1.1184/£1 as financial markets begin to price in the possibility of further money being pumped into the economy by the Bank of England, and as the prospect of weak UK growth figures hit home. In addition, sterling hit a 20-year low against the Australian dollar. In terms of data, the 'first estimate' of UK GDP growth is released today and is expected to show a drop on last quarter to 0.4%. Any deviation outside of this is likely to cause significant volatility.

In the Euro zone, the euro gained against the US dollar and sterling yesterday - breaking through the €1.40/$1 and €1.12/£1 barriers before falling back. The euro's strength against sterling gives an idea of how the financial markets view the UK economy. European debt no longer seems to be an issue, which is bizarre, given the European meltdown that people were talking about several months ago. Data released yesterday showed that industrial orders for the region increased by more than expected, coming in at 5.3% against an expectation of 2%. In terms of data for today, there is data on the consumer climate and also German import prices.

In the USA, the US dollar weakened across the board as G20 leaders agreed to avoid competitive currency devaluation. However, the leaders stopped short of setting targets to stop global trade balances damaging the global recovery. As a result, the markets saw no reason to stop selling the US dollar as the focus shifted to the Federal Reserve's next meeting on November 2-3. The US dollar hit a 15-year low against the Japanese yen and dropped by 1.3% against the Australian dollar on the news that the Singapore stock exchange would buy the Australian stock exchange. One positive piece of news for the US economy was that existing home sales jumped by 10% in September.

Elsewhere, the Chilean central bank president said yesterday that the Chilean peso's gain was comparable to other currencies general appreciations. With currency appreciation a concern, Chile is one of the only Latin American countries not to have implemented measures to curb the appreciation in its currency.

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