Sterling has had an interesting week, gaining against the US dollar and euro. The pound hit a three-week high against a weak US dollar on Thursday, but slipped from earlier highs against the euro as concerns about the fragile UK economic recovery dented sterling’s prospects and reinforced the view that UK interest rates will stay on hold for a long period. Sterling’s recovery from lows hit earlier in the week has more to do with poor US figures than any positive news from the UK. Many analysts feel that sterling cannot push much beyond $1.62/£1 against the US dollar given the prospect of further quantitative easing in the UK. Call in now for a live exchange rate.

The euro has had a volatile week as Italy joined the ever-growing list of countries succumbing to the sovereign debt crisis. The euro came under pressure as Italian bond yields hit a 15-year high – i.e. Italy has to pay astronomical interest rates in order to borrow. However, these eased as the country’s austerity budget passed its first hurdle. The 4-year package aims to balance the country’s books by 2014 and is worth €48bn. Inflation for the region came in as expected at 2.7% as had been expected. Call in now for a live exchange rate.

In the USA, the US dollar took a hammering this week against sterling and other major currencies as Federal Reserve Chairman Ben Bernanke raised the prospect of further quantitative easing. This saw investors look to higher yielding currencies, however on Thursday he told a US Senate Committee that the time had not yet come and noted that inflation had actually risen since 2010. In other news this week, the US Congress is still engaged in a bitter deadlock over a US austerity plan that is desperately needed to raise the country’s borrowing ceiling and avoid a default event on August 6th. Keep an eye on this one as it could get messy…

Elsewhere, with Italy related panic in the markets, safe haven currencies saw a large boost this week – particularly the Japanese yen which gained against the US dollar before falling off on news that Italy’s bill had passed the first stage of parliament. In addition, New Zealand’s dollar strengthened to a record versus its U.S. counterpart after the economy grew at a faster pace than central bank had forecast, signalling that the nation is recovering from a deadly earthquake in February.

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