Sterling tumbled to a one week low against the US dollar, after the Bank of England stated that inflation would not fall below its two per cent target for the next two years, and left the door open to more quantative easing. The Central Bank also cut its forecast for UK economic growth. The US Federal Reserve reported that the US economic recovery had slowed, while it reiterated its pledge to hold benchmark interest rates at record lows for an extended period. With this the dollar surged higher as rising risk aversion fuelled safe haven demand for the US currency. Elsewhere the euro continued its decline, hitting a one month low as the single currency came under selling pressure as risk aversion took hold.

Sterling

Sterling dropped against a basket of currencies, following the governor of the Bank of England Mervyn King’s announcement that the UK economy faces a “choppy recovery” over the next two years. His comments came as the central bank lowered its economic growth forecast and said that inflation would stay higher for longer than previously expected.

US dollar

The dollar rallied sharply against most currencies but fell to a 15-year low against the yen, as worries about the health of the global economy encouraged investors back into the safe haven currencies.

Euro

The eruro continued to decline, hitting a one month low, as the single European currency came under broad selling pressure. European stocks fell for a third day following a report on industrial production in the region that further suggested that the pace of economic recovery is slowing. This was echoed by statements from the American Federal Reserve which suggested that further unusual stimulus measures, or mild quantative easing measures would be necessary to help prop up the world’s leading economy.

Japanese yen

The yen dropped off in the overnight trading session, retreating from a five-week high against the euro. This followed speculation that the Japanese central bank will act to halt any further advance in their home currency, with a strong yen imperilling the nation’s export-led economic recovery. Japan’s currency weakened against 14 of its 16 major counterparts after officials from the Ministry of Finance and Bank of Japan met to discuss financial markets.

Commercial Foreign Exchange Travelex Malta, freephone: 800 733 22, www.travelex.com/mt/

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