Sterling fell across the board yesterday as fears of a nuclear crisis in Japan led investors to sell off holdings in ‘riskier’ currencies and expectations of a rate hike in the UK were pushed back. Against the euro the pound slipped below 1.15/£1 for the first time since November as markets priced in a 0.25% interest rate hike in either August or September. Last month, expectations were for a May or June hike and the change of sentiment has hurt sterling. Despite the UK’s AAA credit rating being reaffirmed recently, sterling holdings are higher yielding than the yen, US dollar and Swiss franc and as such are seen as ‘high risk’. When markets panic in the wake of nuclear explosions, tsunamis and Middle East turmoil only the safest of currencies will do. Stay in touch as there is a lot of volatility.

In the euro zone, financial markets also cut their expectations of a European interest hike later in the year as stock markets suffered and turmoil in the Middle East and Japan left investors questioning the wisdom of a rate hike in the face of doubtful global growth. However, there is still a strong expectation of a move by the ECB in April, which is why the euro saw such strength against sterling yesterday.

In the USA, the Federal Reserve met last night and maintained rates and quantitative easing on hold, but did state that they are unlikely to add further stimulus as the US recovery gathers pace. There was widespread panic yesterday in Japan as concerns over a nuclear crisis left investors heading for safe currencies. The US dollar strengthened against the euro and sterling.

Elsewhere, the higher yielding ‘commodity’ currencies of the Australian dollar, NZ dollar and South African rand had a terrible day after falling around 2% against most currencies. The rand in particular suffered – falling nearly 3% against the US dollar as Japan is a key trading partner to South Africa. If you have been holding off on buying rand, now is a far better time to look at it as it was about the only currency that sterling strengthened against.

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