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Sterling steadied against euro after turbulent week

Published:  31 January, 2011

Sterling steadied against the euro at the end of a turbulent week for the UK economy and sterling's prospects.

Sterling steadied against the euro at the end of a turbulent week for the UK economy and sterling's prospects.

Currency Rates
EURO/GBP - 1.1649
US$/GBP - 1.5876
CHF/GBP - 1.4939
CAN$/GBP - 1.5864
AUS$/GBP - 1.5948
ZAR/GBP - 11.3870
JPY/GBP - 130.23
HKD/GBP - 12.3744
NZD/GBP - 2.0514
SEK/GBP - 10.3364
US$/EURO - 1.3623

Shocking GDP figures on Tuesday drastically altered market expectations for an interest rate hike by the Bank of England as the data showed that the economy contracted by 0.5% in the last 3 months of 2010. However, Wednesday's Bank of England minutes showed that another member of the committee voted for a 0.25% interest rate hike which saw market anticipation for an interest rate hike creep back in. Prospects for a UK recovery were dented further on Friday when a survey showed that consumer confidence dropped to the lowest level in 22 months as the VAT rise and spending cuts loomed.

In the euro zone, the euro slipped by 1% against the Japanese yen and the Swiss franc as risk aversion boosted demand for the traditionally safe haven currencies of Japan and Switzerland. The developing situation in Egypt left investors concerned over the general situation in North Africa and the Middle East. With Egypt seen as a pivot point for stability in the region, financial markets will keep a very close eye on things. This week sees a wide array of data including the European Central Bank's interest rate decision and press conference.

In the USA, the US dollar had a bumper day on Friday as GDP data showed that the economy gathered pace in the last quarter of 2010. In addition, the situation in Egypt saw safe haven buying of the US currency after oil prices jumped due to concerns over future supply in the event of unrest in the Middle East.

Elsewhere, the Japanese yen performed well as strong economic data helped boost the currency. Industrial production data showed a 3% gain on the previous month while Australian inflation slowed in January to a four month low.

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