Sterling Falls to 6 week low

Tom Tong06/Sep/2011Currency Updates

GBP

Sterling hit a one and half month low against the dollar on Monday after data showed a sharp slowdown in the UK services sector. This fuelled speculation the Bank of England may resort to another round of asset purchasing to boost the economy.

The pound was also hit along with other perceived higher risk currencies on concerns major economies may return to recession after weak U.S. jobs data and mounting concerns about euro zone debt and banking sector problems.

Market players said sterling would remain under pressure after the UK services PMI unexpectedly fell to 51.1 in August from 55.4 in July. This is the biggest drop we have seen in more than a decade.

EUR

The EURO lost further ground in Asia this morning, as Asian equity markets followed plunges in Europe due to worries about the fragile global economy and renewed fears over Greek sovereign debt.

European stocks plummeted Monday. Bonds issued by Greece and Italy fell and the cost of insuring against default by Italy and France, as indicated by the market for credit default swap (CDS) instruments, rose sharply.

The head of the European Central Bank, Jean-Claude Trichet, warned Monday of an immediate and imperative need for enactment of a second debt rescue for Greece, and for tightened discipline in the management of eurozone economies.

The European Central Bank is due to hold a policy meeting on Thursday.

USD

The US markets are back online today after the observation of the Labour Day holiday Monday. The European markets were especially active owing to the deepening financial crisis for the region leading the dollar to strengthen against the GBP and EUR. The ISM Non-manufacturing PMI is released today (3pm BST). This is the measure of the Level of a diffusion index based on surveyed purchasing managers, excluding the manufacturing industry. It is predicted as a slight drop from the previous figure, meaning the dollar could fall.

Elsewhere, Credit Agricole strategists said: “The picture looks gloomy and expectations of action both by the Federal Reserve on September 21st and more immediately by President Obama on Thursday have intensified”. Still, they said it’s unlikely that either the Fed or the president will oblige investors, and added that “all of this highlights just how ugly the U.S. dollar looks, but fortunately for the currency, the euro is looking even more unsavoury.”

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Written by Tom Tong

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