Currency update, October 18 - sterling hits high of $1.61

Published: 18 October, 2010

Sterling rose to the highest level against the US dollar since the end of January on Friday after Fed Chairman Ben Bernanke said that low inflation gave a case for more intervention by the Federal Reserve.

Currency Rates
EURO/GBP - 1.144
US$/GBP - 1.584
CHF/GBP - 1.528
CAN$/GBP - 1.619
AUS$/GBP - 1.615
ZAR/GBP - 10.937
JPY/GBP - 128.72
HKD/GBP - 12.291
NZD/GBP - 2.111
US$/EURO - 1.383
HUF/GBP - 316.70

Sterling hit a high of $1.6108/£1 - the highest since Jan 29th, but further gains were limited as the prospect of further monetary easing had already been priced in by many over the last few weeks. Against the euro, sterling gained marginally following demand to convert euro dividends into sterling. The key data out this week is released on Wednesday with the results of the now infamous spending review due alongside the minutes from the Bank of England's recent meeting. With two members of the committee recently advocating further Quantitative Easing, these meeting minutes could see serious volatility - ensure you are protected before Wednesday to avoid losing out.

In the Eurozone, it is a relatively quiet week for data in the region, with the major release coming on Thursday in the form of business surveys for manufacturing and services data. Both figures are expected to show a slowdown, but with the focus on the US and UK this week as concerns over their respective recoveries grow, the euro is likely to have a relatively strong week.

In the USA, with Ben Bernanke offering his most explicit signal yet that the Federal Reserve would start to pump further money into the economy, the US dollar slipped on Friday. However, with the US dollar at 8 month highs against the euro and sterling and at multi year lows against other currencies, many traders have pulled back on 'short' positions (i.e. bets against the US dollar) in order to protect themselves. Out today, there is US industrial production figures.

Elsewhere, the Australian dollar moved above parity (1:1) against the US dollar on Friday for the first time since the currency floated in 1983. In addition, the Japanese yen hovered around 15 year highs against the US dollar sparking concerns that the Japanese government would start intervening to weaken the currency like they did in September. However, many have speculated that Japan do not want to intervene ahead of Friday's G20 summit in order to avoid criticism over market manipulation at the meeting.

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