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Sterling weaker on new data

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by Elaine Frei

In the UK on Wednesday, sterling was weaker after the release of several bits of news that did not support the currency. One of the worst bits of news was the fact that the current account deficit for the last quarter of last year was revised upward to £10.96 billion, which amounts to 3.6 percent of the Gross Domestic Product. This was much higher than the £6.9 billion that had been the expected revision. Other news included that mortgage approvals were down in February for the first time since late 2004. Additionally, new data showed that the growth in consumer spending in the fourth quarter of 2005 came on the back of lower savings as disposable income remained unchanged in the quarter.

Coming along with Tuesday’s interest rate hike in the United States, the data was just too much for sterling, which dropped 0.5 percent to $1.7349 in relation to the US dollar, lost 0.6 percent versus the euro to £0.6927, and declined by 0.5 percent each against the Japanese yen and the Swiss franc, to ¥204.58 and SFr2.2716 respectively.

Meanwhile, the US dollar held on to gains that had come in late trade on Tuesday, after the rate hike was announced. The announcement was accompanied by comments that most analysts took to mean that further rate hikes in April and May are inevitable.

During the day, the greenback traded at $1.2018 in relation to the euro and at ¥117.92 against the yen.

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News posted: March 29, 2006

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