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Currency update July 6: Sterling slumps

Published:  06 July, 2010

Currency update for July 6 by Smart Currency Exchange: record drop in confidence results in sterling slumping from a daily high of $1.52/ £1 to hold above $1.50/£1.

Currency Rates, July 6

EURO/GBP - 1.206
US$/GBP - 1.517
CHF/GBP - 1.611
CAN$/GBP - 1.609
AUS$/GBP - 1.791
ZAR/GBP - 11.697
JPY/GBP - 133.39
HKD/GBP - 11.822
NZD/GBP - 2.190
HUF/GBP - 343.73

The pound fell yesterday after weaker than expected data on UK services sector activity highlighted the fragile state of the country's recovery. This saw many investors booking in profits after the pound's late rally against the US dollar at the end of last week.

The measure of PMI service sector activity showed a drop form 55.4 to 54.4 due to subdued business confidence and a record drop in confidence. As a result, sterling slumped from a daily high of $1.52/ £1 to hold above $1.50/£1 and against the euro the pound traded in a fairly narrow range between €1.2050/ £1 and €1.21/£1.

Out today, there is house price data for the month which is expected to show a slight increase in prices. However, the last few sets of results have disappointed and caused the pound to weaken.

In the Euro zone, the euro took advantage of the dip in service sector activity to gain 0.3% against the pound but the single currency fell marginally against the US dollar, ending the day down 0.2% after concerns that the European Central Bank will keep interest rates at a record low as efforts to trim national budgets is hampering regional growth in Europe.

Many analysts feel that the European economy does not warrant interest rate hikes for the considerable future and as such, the euro fell. PMI data came in as expected and investor confidence increased by more than was expected with a drop of -1.3% on the month versus an expected drop of -4.5%. Out later today, there is no real data for the Euro zone, so expect the currency to trade on general sentiment.

In the USA, with the markets closed for the Independence day weekend, there was no economic data released and as such quite limited movement as there was fewer places that banks could buy currency from each other. Out today, there is PMI purchasing manager's data that excludes manufacturing. Including this data with the fact that the markets have been shut for three days could see a large amount of volatility.

Elsewhere, the Reserve Bank of Australia has held the latest monetary policy meeting and decided to keep interest rates on hold at 4.5%. This was largely expected by the financial markets, but as a result, the Australian dollar did strengthen marginally.

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