Sterling falls after downgraded UK economic growth forecast

Published: 11 August, 2011

Sterling fell by 1% against the US dollar yesterday after the Bank of England downgraded its economic growth forecast for the UK.

Sterling fell by 1% against the US dollar yesterday after the Bank of England downgraded its economic growth forecast for the UK

Currency rates - Aug 11

EURO/GBP - 1.1344
US$/GBP - 1.6201
CHF/GBP - 1.1839
CAN$/GBP - 1.6011
AUS$/GBP - 1.5735
ZAR/GBP - 11.54
JPY/GBP - 123.98
HKD/GBP - 12.6330

NZD/GBP - 1.9686
SEK/GBP - 10.5288
US$/EURO - 1.4261

It dropped to $1.6117/£1 growth expectations were lowered to around 2% in the final quarter of 2011. It also added that it expected inflation to drop rapidly next year. Sterling recovered against the euro following speculation that France will be the next country to lose its AAA credit rating after the USA. Stock markets continued to slump as investors worried that the USA or euro zone would not be able to rein in debt burdens and avoid a double-dip recession.

In the euro zone, European shares ended sharply down yesterday, led lower by a steep sell-off in banking shares, with Societe Generale down more than 21%. As a result, the euro plummeted against the US dollar and Swiss franc as concerns grew about possible trouble at French banks with large exposure to peripheral euro zone debt. The ECB's purchase of Italian and Spanish bonds has failed to quell concerns over the European banking system.

In the USA, the US stocks fell again following a rebound the day before. Interestingly, Goldman Sachs expects the US dollar to weaken and recommended that its clients 'go short' or bet against the US currency. Markets remain concerned that the USA has no real plan to reduce its deficit and that it will plunge into recession again - with all possible stimulus methods now exhausted.

Elsewhere, commodity based currencies such as the Australian and New Zealand dollars saw heavy losses. The higher-yielding Australian dollar dropped 1.6 percent against the U.S. currency, while the New Zealand dollar slumped 3.3 percent. However, the South African rand rebounded from a one year low against the US dollar as the Federal Reserve pledged to keep interest rates at near zero into next year.

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