Daily currency report

The Governor of the Bank of England, Mervyn King, commented that inflation has risen since his last appearance and this has been exacerbated by the period of sustained pressure that the pound has endured.

Sterling (GBP)

The sterling touched on a new two-and-a-half-year low against the resurgent greenback after comments made by Bank of England policymaker, David Blanchflower. The most dovish member of the Central Bank's monetary policy committee made his comments advising MPs to expect "a large increase in unemployment", and warned that a "horrible surprise" could be just around the corner. The gloomy assessment sent shares in London falling, and also weakened sterling yet further against the dollar.

US Dollar (USD)

The dollar consolidated following the news that the US trade deficit had swelled during July to $62.2 billion - mostly as a result of the sharp rise in oil prices. Crude prices soared earlier this year, eventually peaking at $147pb in July. Consequently oil imports also increased by about 15 per cent in the month. This took the petroleum deficit to a record $43.3bn. Nevertheless, the greenback held steady because if petroleum products are excluded, the trade deficit is at its lowest level since October 2002. Oil prices have subsequently fallen back to $100 a barrel which should provide some comfort for future trade data.

Euro (EUR)

The euro recouped some gains against the dollar as European Central Bank president Jean Trichet emphasised the need to control inflationary pressures in the eurozone. This has raised doubts about the Central Bank lowering the borrowing cost from the current 4.25 per cent in the next policy meeting.

Japanese Yen (JPY)

The yen remains the main beneficiary of the spike in global investor risk aversion, rising to a one-week high against an otherwise stronger greenback, a two-year peak against the euro, and a 27-month peak against the Australian dollar.