Sterling weakens this week

| August 18, 2006 | 0 Comments

Sterling was lower this week as a number of indicators led to the conclusion that the August move by the Bank of England to raise interest rates would likely not be followed immediately by further rate hikes. Even though some analysts still expect rates to rise in the UK one more time this year, data on inflation and unemployment put even that possibility in question.

During the week, the UK currency dropped 0.5 percent to $1.8807 against the US dollar, while it was 0.9 percent lower to ¥217.74 in relation to the Japanese yen and declined 1.2 percent to £0.6811 against the euro.

The Australian dollar was also down during the week, dropping 1 percent to $0.7581 versus the US dollar, while it fell 1.5 percent to ¥87.78 in relation to the yen. The decline came as testimony from the governor of the Reserve Bank of Australia did not support the expectation that interest rates in Australia would rise to 6.25 percent in November.

The yen dropped to ¥148.94 versus the euro on Friday, a new low, hurt by interest rate differentials. Elsewhere in Asian currencies, the Chinese renminbi was slightly stronger at the end of the week at Rmb7.974 to the dollar in the wake of a roller coaster week that had some analysts believing that the tight rein on the Chinese currency was about to be loosened.

In emerging currencies elsewhere in the world, the South African rand dropped 3.1 percent to R6.9833 versus the dollar, while the Hungarian forint declined by 3.2 percent to Ft278.74 to the euro on news of increasing public debt.

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