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Currency update, September 2: sterling hits three week low against euro

Published:  02 September, 2010

Sterling hit a three week low against the euro yesterday after UK purchasing manager data came in sharply lower than was expected.

Currency Rates
EURO/GBP - 1.203
US$/GBP - 1.540
CHF/GBP - 1.560
CAN$/GBP - 1.620
AUS$/GBP - 1.695
ZAR/GBP - 11.220
JPY/GBP - 129.65
HKD/GBP - 11.974
NZD/GBP - 2.155
EURO/US$ - 1.280
HUF/GBP - 340.92

The survey asks business purchasing managers whether they have bought more or less this month, and is a key indicator of business activity. It dropped by nearly three points on last month to hit the lowest level since November last year. Sterling fell to €1.2007/£1 as a result and struggled against other currencies such as the Australian dollar. Against the US dollar however, sterling broke through a key technical level which saw it hit a high of $1.5444/£1 - above the key 200 day moving average level of $1.5434/£1 which is watched so closely by many traders. However, sterling has shed these gains this morning to drop to $1.5390/£1 as poor data released this morning increased demand for US dollars. The Nationwide house price index showed that house prices have dropped by 0.9% last month sparking concerns over the health of the UK recovery. There is construction sector data released later today which sees further potential for sterling to fall.

In the Euro zone, German retail sales disappointed coming in at -0.3% against an expectation of 0.6% growth. Final European manufacturing purchasing mangers data showed a slight improvement, coming in at 55.1 against an expectation of 55.0. Eurozone PMI data has been boosted recently by a boost in Asian demand for European exports and relief following the recent EU bank 'stress tests'. The latest figure is released today alongside revised GDP figures and the European Central Bank interest rate decision. This is expected to remain on hold.

In the USA, whilst manufacturing purchasing data showed an improvement that was better than expected, the ADP non-farm payroll figures came in a lot worse than expected. There was an expectation that the figures would show that the US econo9my added 20,000 jobs last month, but the data showed a drop of 10,000 sparking fears that Friday's 'main' non-farm payroll data will be worse than expected. Out today, there is further Unemployment data in the form of the US claimant count and pending home sales data released. Federal Chairman Ben Bernanke also testifies to the Senate.

Elsewhere, Australia's trade balance surplus narrowed for the first 3 months in July. Exports slumped by 4.6% with shipments to China falling by 7.9%. Chinese demand for mined goods from Australia has kept the antipodean economy afloat. Overseas sales of coal dropped by 16%, sparking fears that the boost from China is drying up.

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