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Currency Update
In recent months currency markets have been driven largely by investors' appetite for yield.
Currencies with high associated interest rates such as Sterling and the Australian and New Zealand Dollars have performed well while currencies from countries with low interest rates, such as the Japanese Yen have done poorly.
In many cases investors have borrowed Yen to buy higher yielding currencies - the so-called 'carry trade'. The US Dollar meanwhile began the year well, gaining against most currencies, as the outlook for the US economy seemed to improve which reduced the likelihood of interest rate cuts in the US.
However, in recent days concern about the state of the US housing market has resurfaced. Combined with increasing tensions in the Persian Gulf this is once again causing the US Dollar to come under pressure.
As a result several of the other major currencies are again trading at or close to their 12 month highs - the Euro at 1.3210, Sterling at 1.9650, the Australian Dollar at 0.7930 and the New Zealand Dollar at 0.7100.
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