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November 1, 2006

Sterling stronger as US dollar weakens

Permalink: Sterling stronger as US dollar weakens
by Elaine Frei

The US dollar was weaker on Wednesday on new data from the Institute of Supply Management that shows the manufacturing sector at its lowest level since June 2003, well below the forecast numbers. Analysts said that this new survey, coupled with other recent disappointing economic news, supports the view that the next time the Federal Reserve alters interest rates, that alteration will be in a downward direction. This view is in direct opposition to recent comments made by Richmond Fed president Jeffrey Lacker that interest rates need to be raised further.

The greenback was 0.2 percent lower versus both the euro and the yen, to $1.2780 and ¥116.80 respectively, and down 0.3 percent against the Swiss franc to SFr1.2415 by mid-afternoon in New York.

Sterling continued to strengthen, adding 0.1 percent to £0.6680 in relation to the euro and gaining 0.2 percent to $1.9110 against the US currency. The gains came even though the UK manufacturing purchasing managers’ index was down to 53.7 in October, from 54.5 in September. Output prices, however, were up, increasing the likelihood that the Bank of England will hike interest rates when its Monetary Policy Committee meets next week.

The only major currency to fall in relation to the US dollar was the Canadian dollar, on the news of a proposal by Canada’s finance minister to end the favorable tax treatment now received by income trusts in that country. The Canadian dollar dropped 0.8 percent to C$1.1310 versus the greenback.

In Norway, the krone added 1 percent to NKr6,4690 to the US dollar and was 1.1 percent higher to NKr8.2650 versus the euro after the Norges Bank hiked the interest rate there by 25 basis points to 3.25 percent and said that further hikes could come sooner than had been expected.



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