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Posted May 20th, 2010 by Charles Purdy

EURO/GBP – 1.158
US$/GBP – 1.437
CHF/GBP – 1.651
CAN$/GBP – 1.512
AUS$/GBP – 1.722

The new Chancellor of the Exchequer made his first speech yesterday outlining some of his thoughts on how to encourage businesses to the UK rather than driving them away. Key in this was a reduction in corporation tax. All makes sense because without a strong private sector it becomes very difficult to match government expenditure to income. Sterling had a relatively steady day as it continues to trade in narrow ranges against the euro and be on a downward trend against the US$. Against currencies such as the Australian $ and the New Zealand dollar sterling gained ground as risk aversion was on the increase over the Chinese economy. So times continue to be “interesting” and that is why I suggest you call in now so as to avoid unnecessary losses.

In the Euro zone the story of the day was the attempt to stop short selling of the euro [that is where investors sell Euros they don’t own on the belief that they could buy them later at a lower price]. There seemed to be some element of success as the euro strengthened from its four year low against the US$. The problem is that the markets will always find a way round such restrictions and therefore I suspect any solution like this will be short term and probably counter productive especially as it doesn’t address the problem. More volatility for the euro and again a good reason to call us sooner rather than later.

Again the US$ is benefitting from risk aversion and continues to strengthen against sterling and the euro. Even the Russians who wanted to diversify their reserves out of the US$ have been increasing their holding of US$’s. So unless there is some dramatic news out of the US it seems that the US$ is in an upward trend against both the euro and sterling for the short to medium term. So I would suggest that if you need to buy some US$’s then sooner rather than later probably makes sense.

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