Smart Currency Exchange: Muted recovery for Sterling yesterday [27/01/2011]

Smart Currency Exchange: Muted recovery for Sterling yesterday [27/01/2011]

Sterling staged a muted recovery yesterday following Tuesday’s shock GDP figures, finishing the day up 0.55% against the euro and 0.3% against the US dollar. Sterling saw the recovery after the Bank of England minutes showed that another member of the committee had unexpectedly joined Andrew Sentance in calling for a 0.25% rate hike, which left some feeling that there is a likelihood of an interest rate hike later this year. MPC member Martin Weale has so far stayed on the fence, but the stubbornly high inflation caused him to side with rate hawk Sentance. In reality the likelihood of an interest rate hike in the next 6-12 months is minimal with many analysts still reeling from Tuesday’s shocking announcement. In a speech on Tuesday night, Mervyn King stood by his assessment that inflation will peak at around 5% before tailing off next year. Until the fundamental figures pick up, sterling is going to be in a holding pattern for the considerable future. Check out Smart Currency’s Nick Ryder in yesterday’s Guardian here.

In the euro zone, the euro hit a 2 month high against the US dollar as investors speculated that interest rates in the euro zone would rise sooner than in the USA. With the European Central Bank concerned about rising levels of inflation and the Federal Reserve set to keep monetary policy relatively loose for the time being gave rise to speculation that the euro holdings would yield more in the coming months as the ECB looked to control inflation with interest rate hikes. With the current situation in the region, any rise in interest rates would be nigh on suicidal for the likes of Portugal and Greece, so don’t expect this for a while. Call in now for a live exchange rate.

In the USA, the US dollar fell yesterday following President Obama’s State of the Union address in which the President promised spending cuts. The move to trim the deficit was seen positively by the markets and it left markets expecting loose monetary policy for the months to come in order to accommodate the cuts. The Federal Reserve met last night and made no changes to monetary policy, giving investors more certainty as to the future in contrast with the UK – this will help stabilise price volatility. Call in now for a live exchange rate. 

Elsewhere, the Australian dollar suffered as Prime Minister Julie Gillard unveiled a tax to pay for flood repair – the PM estimated that the damage will cost AU$5.6bn and cut economic growth by 0.5% next year, although analysts feel that estimate could be a little conservative. Japan’s credit rating was slashed this morning over concerns that not enough was being done to cut the deficit.

EURO/GBP – 1.1640
US$/GBP – 1.5882
CHF/GBP – 1.5007
CAN$/GBP – 1.5857
AUS$/GBP – 1.6070
ZAR/GBP – 11.2684
JPY/GBP – 139.93
HKD/GBP – 12.372
NZD/GBP – 2.0683
SEK/GBP – 10.2882
US$/EURO – 1.3646

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