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Sterling falls as UK manufacturing data drops to two year low

Published:  02 August, 2011

Sterling fell by 1% against the US dollar yesterday after UK manufacturing data dropped to the lowest level in two years.

Sterling fell by 1% against the US dollar yesterday after UK manufacturing data dropped to the lowest level in two years.

Currency rates - August 2

EURO/GBP - 1.1457
- 1.6281
- 1.2706
- 1.5562
- 1.4950
- 10.9724
- 125.95
- 12.6926

NZD/GBP - 1.8602
- 10.2855
- 1.4202

It gives investors a stark reminder of the headwinds that face the UK economy and markets now expect an interest rate hike of 0.25% in December 2012. Whilst the Bank of England did not discuss further Quantitative Easing last month, there have been increasing calls for a second round of stimulus - notably from business secretary Vince Cable. 

In the euro zone, the euro fell further against the US dollar as stock losses and weak US manufacturing data hurt risk appetite. In addition, concerns over the ability of politicians to rein in the euro zone debt crisis and the threat of a US credit rating downgrade will keep peripheral bonds yields high for some time threatening a further bail out in the region. 

In the USA, the US dollar hit a record low against the Swiss franc and a four and a half month low against the Japanese yen as markets began to question the fiscal credibility of the world's largest economy. Republicans and Democrats eventually reached a compromise on spending cuts over the weekend, and the House of Representatives approved the deal last night. Markets are still concerned that credit rating agencies will still downgrade the US credit rating as the cuts package fails to go far enough. One rating agency said that a $4 trillion package would be needed to avoid a default - this package only covers $2.4trn. US manufacturing followed the UK figures in underperforming and didn't help investors' feelings towards the US dollar. 

Elsewhere, the Swiss franc strengthened to records against the dollar, pound and euro as concern that US government debt will be downgraded stoked demand for the haven currency. In addition, the South African rand declined against the US dollar after the poor US manufacturing report. Call in now for a live exchange rate.

Smart Currency Exchange is a currency partner to Harpers Wine and Spirit. Harpers Wine and Spirit has teamed up with Smart to provide readers with a free bespoke currency service.