Sterling weak while USD continues to rally

Sterling’s weakness over the past week - it lost value against the US dollar, the euro, the yen and the Swiss franc - was a result of lagging retails sales data and low economic growth figures as well as continuing speculation that UK interest rates might soon be cut.

Sterling lost 1.9 percent this week to £0.6751 in relation to the euro, was down 0.7 percent on the week to ¥197.67 against the yen, and declined 1.3 percent for the week to SFr2.2940 in relation to the Swiss franc.

The euro was stronger, in spite of a decline for the week in relation to the US dollar. Besides its gains in relation to sterling, it was up 1.2 percent for the week to ¥133.53 in relation to the yen.

There are also signs that sentiment against the euro, prevalent since the French and Dutch votes against the European Union constitution, is beginning to turn around.

The yen has remained weak since the steep decline in Japan’s trade surplus was announced.

Meanwhile, the US dollar was strong on Friday on the release of data from the Institute of Supply Management that showed its manufacturing index up to 53.8 in June when it had not been expected to rise above May’s figure of 51.4.

The dollar was up 1.1 percent to $1.1958 in relation to the euro, a 13-month high, advanced 0.8 percent for the day and 2.2 percent for the week to ¥111.64 against the yen, and was up 1.1 percent on the day and 2.9 percent on the week in relation to sterling, to $1.7705.

The US dollar also rose 1.4 percent to C$1.2416 against the Canadian dollar. The Australian dollar was down 2.4 percent for the week to the US dollar, to $0.7516, while the New Zealand dollar declined 3.1 percent to $0.6834 in relation to the greenback.

Another factor in the dollar’s strength were comments from the Federal open market committee that make it sound like the Fed will continue to raise interest rates at the current pace for the foreseeable future.

Some analysts took this to indicate that US interest rates might reach 4.25 by the end of 2005.

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