Sterling strengthens versus dollar over continued QE2 fears

Tom Tong14/Oct/2010Currency Updates

GBP

Sterling hit a five-month low against the euro on Wednesday as weak UK consumer confidence data and a mixed employment report reinforced concerns about the UK’s economic recovery.

Data showed the number of Britons claiming jobless benefits last month rising but the wider measure of the unemployment rate dipping in August to its lowest in more than a year. Weakness in the UK economy has increased speculation that the Bank of England may need to pump more money in through quantitative easing. On Tuesday, Bank of England policymaker David Miles said QE remained a powerful tool and one that the Monetary Policy Committee might come to use.

USD

The US dollar fell against its most traded counterparts on Wednesday after Federal Reserve meeting minutes released the previous day reinforced expectations of more monetary easing in the United States.

Minutes of the Fed’s September meeting showed officials thought the struggling US recovery may require more help. They discussed ways to provide this, including adopting a price-level target and buying longer-term US government debt. More Fed easing means more cheap dollars in the market and low US rates eroding the return on dollar-denominated assets.

EUR

The euro strengthened against its most traded counterparts on Wednesday due to the prospect of further quantitative easing being a necessary requirement in the US and UK The euro additionally benefited from positive Industrial Production figures with a 0.2% rise occurring in August.

At Thursday morning the euro is currently trading at an eight month high versus the greenback as a sharp dollar selloff gathers momentum.

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Written by Tom Tong

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