Sterling stronger as rate hike looms

| September 21, 2006 | 0 Comments

The US dollar was weaker on Thursday after Wednesday’s decision by the Federal Reserve not to raise interest rates for the second month in a row and the comments that accompanied the announcement, which had BNP Paribas predicting that the Fed could have to lower rates before the year is out. Also hurting the greenback was the Federal Bank of Philadelphia’s economic index, which dropped from 18.5 in August to -0.4 in September, a much larger drop than had been anticipated and an indication that regional manufacturing has contracted.

The US currency was 0.7 percent lower versus both the euro and the yen, to $1.2776 and ¥116.50 respectively, while it dropped 0.9 percent against the Canadian dollar, to C$1.1178. Several emerging market currencies, however, were lower versus the dollar. The Brazilian real was 1.1 percent lower to R$2.200 to the dollar, while the South African rand dropped 2.9 percent in relation to the dollar to $7.570 and the Turkish lira fell 1.3 percent to TL1.485 to the dollar.

Sterling, on the other hand, was stronger on the day as analysts raised expectations that the Bank of England will issue a hike in interest rates in November. New data from the Bank showed that inflation is growing faster than official data has led analysts to believe. In addition, there is greater interest in the sterling being shown by central banks.

The UK currency was 0.2 percent higher to SFr2.3685 versus the Swiss franc, while it was 0.4 percent higher at one point against the euro before it slipped slightly to £0.6719 versus the shared currency. Sterling added 0.7 percent against the US dollar to $1.9012.

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