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Concern over Irish debt takes sterling to seven-week high against euro

Published:  16 November, 2010

Sterling slipped against the US dollar yesterday but held near to a seven-week high against the euro as concern over the debt situation in Ireland hampered the single currency's prospects.

Currency Rates
EURO/GBP - 1.179
US$/GBP - 1.603
CHF/GBP - 1.578
CAN$/GBP - 1.619
AUS$/GBP - 1.631
ZAR/GBP - 11.197
JPY/GBP - 133.16
HKD/GBP - 12.432
NZD/GBP - 2.073
SEK/GBP - 11.036
US$/EURO - 1.359
HUF/GBP - 326.16

It was a quiet day for data in the UK with most traders looking ahead to Wednesday's minutes of the Bank of England Monetary Policy Committee from two weeks ago. The movement downwards against the US dollar was as a result of selling by Russian speculators, but sterling was helped as a key Bank of England policymaker stated in a speech yesterday that there was no compelling case to alter monetary policy in the UK. Stubborn inflation and a degree of uncertainty about the economy meant that a 'wait and see' approach was best. Out today, we have key inflation figures which are expected to remain at 3.1%.

In the Euro zone, concerns over Ireland grew yesterday with the opposition party stating that it believed Europe had started moves to bail out the stricken economy as the country struggles to borrow sovereign debt from the capital markets. EU sources were quoted by news agency Reuters as saying that Ireland was unlikely to hold out much longer as the cost of their borrowing rose. Currently the Irish government has to pay 8.1% interest on 10 year bonds - a level that they are unlikely to be able to continue at. One thing is for sure - there is likely to be something decided imminently.

In the USA, with the focus shifting away from concerns over the US economy, the US dollar hit a six-week high against a basket of major currencies yesterday as all eyes returned to the deepening debt crisis in the Euro zone. Yields on US Treasury bonds rose, which increased the demand for US dollar denominated assets. In addition, advanced retail sales data came in nearly twice as good as expected which helped take the edge off the Fed's recent purchase of $600bn worth of Quantitative Easing.

Elsewhere, the deputy chief of the Chinese State administration of Foreign Exchange yesterday stated that China must keep a firm grip on the Chinese yuan exchange rate to avoid speculators from causing dangerous imbalances.

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