Sterling fell to a 5 month low against the euro yesterday on expectations that UK interest rate rises would lag the euro zone. The pound also struggled to move off a 2 month low against the US dollar. UK data showed that 4th quarter GDP fell less than expected; with revised figures showing that the economy contracted by 0.5% rather than 0.6% that had initially been estimated. Mortgage approvals rose slightly, but the real key data will be the 1st quarter GDP data for 2011. The Bank of England will want to see growth if it is to start raising interest rates. Out today, it is a relatively quiet day for UK data but a member of the Bank of England speaks later which could see some fallout with regards to market expectations of interest rate movements.
In the euro zone, European Central Bank President Jean-Claude Trichet was in the spotlight again after making further comments regarding interest rate hikes in the region. Markets are now fully expecting an interest rate rise in the euro zone next month. This helped the euro strengthen, despite Portugal’s debt being downgraded to one level above ‘junk’ status, causing yields to rise even further. Call in now for a live exchange rate.
The US dollar strengthened yesterday after St Louis Federal Reserve President James Bullard insisted that the Federal Reserve should begin to normalise its $600bn bond purchasing programme. Today we have ADP non-farm payroll change – an important pre-cursor to Friday’s main numbers. Call in now for an exchange rate.
Elsewhere, the Australian dollar rose to a 29 year high against the US dollar – the highest since 1982, when it was a managed (i.e. not free floating) currency. Risk appetite is driving Australian dollar strength, so call in to protect yourself.
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