Currencies

LONDON (ShareCast) - Sterling slumped lower having reached seven-month highs against the dollar and yearly highs on the euro earlier in the day.

The dollar recovered after Asian officials said they would continue to buy US bonds even if the credit rating was cut.

Sterling was also hindered by uncertainty in the political arena in the UK. Communities Secretary Hazel Blairs has become the fourth ministerial resignation in the last 24 hours and the fourth at Cabinet level after Home Secretary Jacqui Smith said she will step down.

At one stage Wednesday morning, £1 was worth $1.665 but fell to $1.635, while against the euro, the pound reached as high as €1.165 but by the end of the day slumped to €1.156.

The pound had gained on other currencies earlier on hopes that the UK is dragging itself out of recession.

The UK's service sector showed a surprise return to growth in May, reinforcing hopes that the worst of the recession may be over.

The purchasing managers' index (PMI) rose above the 50-mark to 51.7 from 48.7 in April. Analysts had been expecting a figure of 49.2. Purchasing managers are also more optimistic about the future with the business expectations index increasing to 69.8 in May from 64.6 in the previous month.

Meanwhile, UK consumer confidence continued to rise in May, but at a slower rate than April as concerns about the UK economy and rising unemployment weigh on people's minds.

The Nationwide Building Society's consumer confidence index rose to 53 last month, from 51 in April, but the rise was much smaller than the previous month, which showed an 8 point jump.