Sterling fell by 1% against the US dollar yesterday after the Bank of England downgraded its economic growth forecast for the UK. Sterling dropped to $1.6117/£1 after the Bank lowered expectations for growth to around 2% in the final quarter of 2011 in its quarterly inflation report. It also added that it expected inflation to drop rapidly next year. Sterling recovered against the euro though as debt problems and sovereign risk dogged the single currency following speculation that France will be the next country to lose its AAA credit rating after the USA. Stock markets continued to slump as investors worried that the USA or euro zone would not be able to rein in debt burdens and avoid a double-dip recession. Call in now for a live exchange rate.

In the euro zone, European shares ended sharply down yesterday, led lower by a steep sell-off in banking shares, with Societe Generale down more than 21% at one point on a slew of rumours about the bank. As a result, the euro plummeted against the US dollar and Swiss franc as concerns grew about possible trouble at French banks with large exposure to peripheral euro zone debt. Despite the ECB’s purchase of Italian and Spanish bonds, this has failed to quell concerns over the European banking system. Call in now for a live exchange rate.

In the USA, the US stocks fell again following a rebound the day before. Interestingly, Goldman Sachs expects the US dollar to weaken and recommended that its clients ‘go short’ or bet against the US currency. Markets remain concerned that the USA has no real plan to reduce its deficit and that it will plunge into recession again – with all possible stimulus methods now exhausted. Call in now for a live exchange rate.

Elsewhere, commodity based currencies such as the Australian and New Zealand dollars saw heavy losses. The higher-yielding Australian dollar dropped 1.6 percent against the U.S. currency, while the New Zealand dollar slumped 3.3 percent. However, the South African rand rebounded from a 1 year low against the US dollar as the Federal Reserve pledged to keep interest rates at near zero into next year.

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