Sterling slides against euro and dollar as Osborne increases bank levy

Tom Tong09/Feb/2011Currency Updates

GBP

Sterling slid against all but one of its 16 most traded counterparts during Tuesday trading as UK Chancellor of the Exchequer George Osborne implemented an increased tax levy on British banks, dampening investor sentiment towards the UK and triggering stop loss orders.

This extra levy will raise 800 million pounds as Britain’s government tries to plug a record budget deficit. The pound ended the day down 0.8% against the dollar with 0.5% losses incurred against the euro.

The markets attention now turns to the Bank of England’s latest interest rate decision on Thursday. Many analysts foresee little chance of a change in rates and are therefore more focused on next week’s inflation data and quarterly BoE inflation report as clues are sought as to the timing of future monetary tightening.

Markets are pricing in a rate hike in May, though they see an 18 percent chance of a hike on Thursday.

EUR

The euro rose versus 12 of its 16 most-traded counterparts on Tuesday as signs of normality in Egypt’s financial markets damped concern that unrest in the region would intensify

German exports increased for a second month in December as the global recovery continues to boost demand for goods and services from Europe’s largest economy. In total exports rose 21 percent in December. Shipments to countries within the euro region advanced 20 percent in the year while sales to countries outside the European Union increased 21 percent. In 2010, exports gained 18.5 percent from a year earlier.

USD

The US dollar traded down against the majority of its major counterparts during Tuesday as China’s interest rate increases failed to dampen investors’ appetite for higher yielding assets.

The Chinese rate hike – the third since October – demonstrates the government’s determination to use price-based tools to control prices – particularly foodstuffs. This rate increase came as no surprise, and many analysts forecast one more increase in the near future.

On a mixed day for the dollar one positive note was a rally against the Japanese yen late Tuesday, which occurred as US Treasury yields rose following a poorly-received bond auction, making the US currency more attractive.

Print

Written by Tom Tong

Vestibulum id ligula porta felis euismod semper. Donec ullamcorper nulla non metus auctor fringilla. Cras justo odio, dapibus ac facilisis in, egestas eget quam. Morbi leo risus, porta ac consectetur ac, vestibulum at eros. Donec ullamcorper nulla non metus auctor fringilla.