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Development in exchange rates
Last modified on 25 May 2010 at 13:49
The recovery in the dollar exchange rate against the euro that began at the end of 2009 has accelerated since the eurozone sovereign debt crisis developed. The dollar is expected to strengthen throughout 2010 both on the grounds of uncertainty about the euro and the improving US economy.
The rise in the dollar against the euro that began towards the end of 2009 in response to improved economic prospects in the US accelerated markedly from April as a result of the crisis over sovereign debt among some eurozone countries. By the last week in May, the dollar:euro rate was back at the level of four years ago, not far below the peak seen at the end of 2005. As the US economy strengthens, the likelihood of an early tightening of monetary policy is an added reason to hold the dollar, reinforcing its attraction as a safe haven in uncertain times in Europe.
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| Sources: | IMF International Statistics.
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In recent years movements in sterling have tended to lie between those in the euro and the dollar, but in the present climate sterling has also been perceived as vulnerable because of the scale of the UK budget deficit. Consequently, sterling has only appreciated modestly against the euro. Some further appreciation against the euro is expected, but against the dollar the pound is expected to become weaker during 2010-11.