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September 28, 2006    

Sterling drops on inflation recalculation

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by Elaine Frei

Sterling was weaker on Thursday after the UK Office for National Statistics admitted that it had made an error in calculating overall inflation for goods and services produced in the UK and cut its estimate of that inflation from 3.4 percent to 2.2 percent. After the admission, sterling dropped 0.7 percent to £0.6772 against the euro and it fell 0.8 percent versus the US dollar to $1.8740. Some analysts said that the declines were an overreaction to an issue that would likely not result in any change in the consumer price index.

The euro, meanwhile, added 0.2 percent against the Japanese yen to ¥149.55, nearing the record level it reached against the Japanese currency last month. Comments from Japan’s vice finance minister implied that the yen’s recent problems in relation to the yen are not of paramount concern to the Japanese government at the moment.

The US dollar also gained in relation to the yen, adding 0.3 percent to ¥117.85. The greenback was virtually unmoved versus the euro, however, to stand at $1.2690.

The Chinese renminbi was at Rmb7.8965, setting a new post-revaluation high versus the US dollar. Some analysts see the recent gains in the Chinese currency as a sign that new US Treasury secretary Hank Paulson has been able to create an understand with the Chinese than his predecessors were able to. Part of this success, according to some analysts, is due to Mr. Paulson’s success in persuading US Senators Schumer and Graham to delay a vote on a bill that would impose tariffs on Chinese goods imported into the United States.

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