Sterling falls against dollar after markets go into tailspin

Published: 10 November, 2011

Sterling hit the highest level against the euro for eight months, but fell sharply against the US dollar after a torrid day on the markets.

Currency rates - November 10

EURO/GBP - 1.1761

US$/GBP - 1.5894

CHF/GBP - 1.4485

CAN$/GBP - 1.6297
AUS$/GBP - 1.5778
ZAR/GBP - 12.8150
JPY/GBP - 123.48
HKD/GBP - 12.3739

NZD/GBP - 2.0489
SEK/GBP - 10.6842

AED/GBP - 5.843

US$/EURO - 1.3514

After a brief rally following the announcement of Silvio Berlusconi's resignation, Italy's borrowing costs surged to record levels as bond traders shunned the country's debt and fled to safer options. Borrowing costs (yields) that are above 7% are generally seen as unsustainable and as such markets now expect Italy to need a bailout. This sent financial markets into a tail spin this afternoon and the UK's prospects - whilst better than the euro zone - look bleak if the major trading partner of the UK grinds to a halt.

In the euro zone, one of the major drivers of yesterday's major movement on bond and currency markets was the announcement by euro zone officials that there were no plans for a financial rescue of Italy, which sent Italy's borrowing costs skyrocketing as investors lost confidence that they would be repaid. The past 10 days is a reminder of what so many had feared - contagion. Greece was plastering the headlines last week and within three days, Italy is now the epicentre of the crisis. The euro sank to the lowest levels against the pound and US dollar in months. We are coming closer and closer to the fabled €1.20/£1.

In the USA, stock markets tumbled on concerns over the European debt crisis with Italian borrowing costs seen as being at tipping point. Investors scrambled for US government bonds and cash which saw the US dollar strengthen significantly over the day - by over 1% against the pound.

Elsewhere, China's annual inflation rate fell to 5.5% in October from 6.1% in September for a third straight month of decline from July's three-year peak and Premier Wen Jiabao said prices had fallen further since then. This fuelled expectations that China may start to loosen monetary policy as exporters feel the impact from slowing global growth.

Supplied by Nick Ryder of Smart Currency Exchange, the currency partner to Harpers Wine and Spirit who have teamed up with Smart to provide readers with a free bespoke currency service. Go to www.smartcurrencybusiness.com/winespirit for more information or call on 0207 898 0500.

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