Sterling falls due to drop in consumer price inflation

Published: 13 July, 2011

Sterling fell to a new five and a half month low against the US dollar yesterday after UK consumer price inflation unexpectedly dropped.

Currency rates - July 13

EURO/GBP - 1.1379
US$/GBP - 1.5957
CHF/GBP - 1.3250
CAN$/GBP - 1.5350
AUS$/GBP - 1.4990
ZAR/GBP - 10.922
JPY/GBP - 126.58
HKD/GBP - 12.429
NZD/GBP - 1.9388
SEK/GBP - 10.457
US$/EURO - 1.4017

Inflation fell to 4.2% from 4.5% unexpectedly in June and the trade gap widened by £0.9bn, pointing to further weakness in the economy. Combined with last week's poor industrial and construction figures, there is speculation that UK GDP will be poor in the 2nd Quarter of 2011.

In the euro zone, the euro came under further pressure yesterday, dropping against sterling, with the pound rising above the €1.14/£1 mark for the first time in several weeks as investors became increasingly concerned over the European debt crisis. An emergency meeting of European Finance ministers over Monday and Tuesday failed to reach any form of plan to restructure Greek debt and Spanish and Italian government borrowing costs spiralled on the bond markets. This saw the euro hit a record low against the Swiss franc for a second straight day and a four-month low against the US dollar on fears that European leaders were failing to prevent the crisis from spreading.

In the USA, the US dollar gained against the euro and sterling but started to slip against both in late trading as government trade data showed that the USA's trade deficit widened by more than had been expected in May to hit $50.2bn. The US dollar is being driven by risk related trade and as a result, hit its highest against a basket of currencies in more than three months on uncertainties about the Greek and Italian debt crisis.

Elsewhere, the Canadian dollar fluctuated against it's the US dollar as the US dollar's allure as a safe haven currency countered speculation that global growth may suffer as Europe's debt crisis escalates and the U.S. recovery falters. The Japanese yen (another safe haven currency) also gained broadly - gaining by 1% against the US dollar.

Smart Currency Exchange is a currency partner to Harpers Wine and Spirit. Harpers Wine and Spirit has teamed up with Smart to provide readers with a free bespoke currency service. www.SmartWineSpirits.com

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