A difficult week for sterling

Published: 15 April, 2011

It has been a difficult week for sterling following lower than expected inflation data.

Currency rates - April 15

This week - (Last week)
EURO/GBP 1.1289 - (EURO/GBP 1.1350)
US$/GBP 1.6362 - (US$/GBP 1. 6352)
CHF/GBP 1.4609 - (CHF/GBP 1. 14946)
CAN$/GBP 1.5744 - (CAN$/GBP 1.5601)
AUS$/GBP 1.5541 - (AUS$/GBP 1. 5531)
ZAR/GBP 11.1921 - (ZAR/GBP 10.8750)
NZD/GBP 2.0571 - (NZD/GBP 2. 094)
SEK/GBP 10.1290 - (SEK/GBP 10.1994)
EURO/US$ 1.4482 - (EURO/US$ 1.4401)

It sees sterling hit a five and half month low against the euro. The reason for the drop in inflation was food prices falling by 1.4% as the supermarkets came under pressure to reduce prices. Other data was mixed. Unemployment fell to 2.48 million but benefit claims went up. Exports increased and the trade deficit narrowed which are again positive. Although the Nationwide consumer confidence survey showed an improvement, it still remains at historically low levels. The real problem for sterling is that expectations of increased interest rates are being pushed back.

The euro is still the favoured currency between sterling, the US$ and the euro. As well as hitting a high against sterling it hit a 15 month high against the US$. The major support is the likelihood of further increased interest rates following last weeks 0.25% increase. Also countries such as China are diversifying their reserves of foreign currency with the euro being a major beneficiary. But let's not forget the problem with government debt. However you try and present it €80 billion is not an insignificant amount of debt that the European Central Bank has to fund as part of the Portuguese bail out.

The US$ continues to suffer as we see no end to the Federal Reserves ultra loose monetary policy. One step forward was the cut of US$38 billion to the government budget for the next six months. A small step given the size of US government spend but at least a start. Sterling continues to hold above the US$1.60/£1 level which is an important support.

Commodity backed currencies continue to gain against the US$ with the Australian dollar hitting a 29 year high. The yen is under pressure as import costs rise, industry falters given the infra structure problems arising from the earthquake and tsunami and the low yen interest rates.

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