UK economy's fragility impacts on sterling

Published: 14 October, 2011

Sterling fell against the US dollar yesterday, tracking weakness in the euro and as concerns over the UK economy's fragility impacted on the pound's prospects.

Currency rates October 14

EURO/GBP - 1.1432
US$/GBP - 1.5756
CHF/GBP - 1.4148
CAN$/GBP - 1.6071
AUS$/GBP - 1.5557
ZAR/GBP - 12.3421
JPY/GBP - 121.44
HKD/GBP - 12.2720
NZD/GBP - 1.9812
SEK/GBP - 10.4710
AED/GBP - 5.79
US$/EURO - 1.3767

Last week's shock move by the Bank of England to pump an additional £75bn into the UK economy through a second round of Quantitative Easing has not helped. However, the effect has been less detrimental than when QE was first introduced in 2008. With many developed countries staring down the barrel of further monetary easing, the pre-emptive moves by the Bank have been seen as a positive move.

The euro fell off one month highs against the US dollar on Thursday as investors became concerned over European banks. In a volatile week, Slovakia's parliament approved plans for the expansion of the European bailout fund after initially voting against the measures. Even with a strengthened bailout fund, European banks remain vulnerable as the ECB warned that any sovereign debt defaults would damage the credibility of the euro.

In the USA, tensions have been hotting up between the USA and China over a potential US bill to levy tariffs on Chinese imports in order to mitigate China's artificially undervalued yuan that has damaged US manufacturers. China is the biggest holder of US government debt, so the US has to be careful not to cause an upset - especially given the funding difficulties faced earlier in the year.

Elsewhere, with the focus so heavily on the European debt crisis this week, the Australian dollar has been trading flat against the US dollar despite gaining initially following a decline in the unemployment rate for September. However, weak trade data from China damaged any further gains for the currency.

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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