Sterling dropped to 10-week lows against the euro and six-week lows against the US dollar. Although currency markets remained trapped in tight ranges, sterling has taken more of a hit since UK government debt was revealed to be standing at £801 billion.

Sterling

The decline in sterling was partially due to profit taking but another contributor was the yield on two-year UK government bonds which has fallen to a record low. This has had the effect of making short-dated British debt less attractive than its eurozone counterpart. Lower short-term UK yields hurt the pound across the board, pushing it to six-week lows against the US dollar.

US dollar

The dollar advanced against the euro while the yen rose after the official Xinhua News Agency reported that China is studying curbs on industrial overcapacity. This increased concern that global recovery will slow, playing into the hands of safe haven currencies. The US dollar may weaken as governments worldwide reduce the currency's role in their foreign-exchange reserves, said David Wyss, chief economist at Standard & Poor's.

Euro

The single currency received some support with the release of better than expected German Economic Research Institute business climate figures. Sentiment rose in August building on July's release which saw a small upward revision. The good economic data was offset slightly by the comments from the German Economic Research Institute which said that firms still see their situation worse than a year ago.

Japanese yen

The yen rose again against the euro, on speculation that restrictions on Chinese production will stifle an economic recovery, sparking demand for the relative safety of the Japanese currency.

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