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Posted January 26th, 2011 by Charles Purdy

USD/GBP Rate & Comments for 26th January 2011

US$/GBP – 1.5784

Sterling plummeted yesterday – dropping by 1.3% against the US dollar and 1.1% against the euro – as 4th Quarter GDP showed that the UK economy contracted by 0.5% in the last 3 months of 2010. Markets were expecting December’s poor weather to have an impact with analysts expecting a 0.5% gain, but the figure came as a great shock as there no longer seems to be any justification for last week’s talk of higher interest rates before the summer. Sterling is likely to maintain subdued now for the coming months until the fundamental data catches up with inflation – especially after Mervyn King essentially ruled out any interest hikes for some time after insisting that inflation would retreat after peaking at 5% later this year. On the plus side, we have seen a lot of clients moving sums back into sterling taking advantage of sterling’s demise. 

In the USA, the US dollar had a similarly strong day against sterling – gaining by nearly 2 cents against the nose-diving UK currency. Traders took advantage as sterling posted 1% losses across the board. The US dollar also took a boost from better than expected consumer confidence figures that added to the ever improving picture of a blossoming US recovery. Out later today, we have the Federal Reserve’s interest rate decision and policy statement. Markets are not expecting any changes, but subtle changes in the language used can be seen as a change in direction – either way it is a big day again, so call in now to ensure you don’t lose out.

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