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Sterling ends week poorly against dollar and yen

Published:  01 June, 2012

Sterling had a fairly poor week weakening against the US dollar to a four month low and dropping against the Japanese yen to a 14 week low.

Currency Rates - May 31

This week - (Last week)
EURO/GBP 1.2432 - (EURO/GBP 1.2473)
US$/GBP 1.5374 - (US$/GBP 1.5659)
CHF/GBP 1.4946 - (CHF/GBP 1.4993)
CAN$/GBP 1.5905 - (CAN$/GBP 1.6082)
AUS$/GBP 1.5855 - (AUS$/GBP 1.6042)
ZAR/GBP 13.0925 - (ZAR/GBP 13.061)
JPY/GBP 120.60 - (JPY/GBP 124.75)
HKD/GBP 11.9291 - (HKD/GBP 12.159)
NZD/GBP 2.0437 - (NZD/GBP 2.0751)
SEK/GBP 11.193 - (SEK/GBP 11.232)
AED/GBP 5.6612 - (AED/GBP 5.7561)
US$/EURO 1.2356 - (US$/EURO 1.2557)
INR/GBP 85.86 - (INR/GBP 87.08)

With the UK so intrinsically linked to Europe, the negative sentiment in the Eurozone seems to be weighing on sterling's strength.  The UK's main piece of data this week is the Manufacturing Purchasing Managers' Index (PMI) which has come in worse than expected and fallen to a three year low. With little significant data out of the UK this week, the market was trading on sentiment caused by news out of Europe.

The euro had a poor week plummeting to a two year low against the US dollar and also dropped to a staggering 12 year low against the Japanese yen underlining the markets fear surrounding the future of the Eurozone. This week, the credit rating agency Egan-Jones downgraded Spain for the second time in just two weeks. Bond yields in Italy and Spain continued to soar whilst the yield on the safe haven German bunds dropped to an all-time low. Furthermore, the EU suggested it would consider letting the ESM (European Stability Mechanism) lend directly to troubled banks; but, to date nothing has been confirmed.

The US dollar performed well this week boosted by market fears in Europe and investors looking for a safe haven for their money. Despite the US dollars strength, it was a poor weak on the data front with pending home sales data released well below market expectations and first quarter GDP figures being revised downwards. Furthermore, more negativity came on the labour front as figures showed that the estimated change in the number of people employed in the US missed market expectations and the number of people claiming unemployment benefits was also worse than expected.

Elsewhere, the Japanese yen had an extremely strong week appreciating against the majority of currencies due to its safe haven status whilst the commodity backed currencies struggled. The main shock on the data front was the Australian retail sales figures which showed a contraction when 0.2% growth was expected.