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Sterling trades in up and down pattern

Published:  18 April, 2012

Sterling had a strong morning strengthening against the majority of currencies before weakening off against the commodity backed currencies.

Currency rates - April 18:
EURO/GBP - 1.2130
US$/GBP - 1.5916
CHF/GBP - 1.4592
CAN$/GBP - 1.5752
AUS$/GBP - 1.5325
ZAR/GBP - 12.447
JPY/GBP - 129.30
HKD/GBP - 12.3541
NZD/GBP - 1.9386
SEK/GBP - 10.778
AED/GBP - 5.8438
US$/EURO - 1.3114
INR/GBP - 81.93

Inflation data released yesterday showed Consumer Price Index (CPI) rose to 3.5% year on year, well above the bank of England's target of 2.5%; but, the markets do not expect an interest rate rise anytime soon. Data today will show the number of new people claiming unemployment benefits and the minutes from the last Bank of England meeting will provide some insight on the Bank of England's view on the state of the Economy.

The euro traded in a fairly similar pattern to sterling today weakening off in the afternoon against the commodity backed currencies. A successful Spanish bond auction sold more than the EUR three billion it had hoped to raise; furthermore, a better than expected confidence reading from Germany calmed fears in the Eurozone somewhat.

Moreover, the Spanish Prime minister said that they have done enough to avoid a bailout and a member of the European Central Bank also said that he "doesn't expect Spain" to need a bailout; however, the markets will need to see some strong evidence to support this sentiment before confidence can return.

Contrary to this positivity, the International Monetary Fund (IMF) lowered Europe's growth forecasts suggesting it will contract -0.3% in 2012 and Spain is expected to contract by -1.8%. Data from the UK and any news Spain will be the main focus for investors today.

Mixed data from the US yesterday saw housing starts fall to a level worse than markets predicted; however, building permits beat expectations. The International Monetary Fund (IMF) raised global growth estimates in 2012 from 3.3% to 3.5%; also, raising the US growth estimate from 1.8% to 2.1%. With little data out of the US today, the markets will look for influence elsewhere.

Elsewhere, the Reserve Bank of India cut its central bank rate by 50 basis points when a cut of 25 basis points was widely expected. The Reserve Bank of Australia meeting minutes suggested that interest rates could be cut if inflation remains low. The Canadian dollar performed extremely well in the afternoon after the Bank of Canada left the central bank rate unchanged for the 18th month in a row.

The comments from the Bank of Canada strengthened the Canadian dollar as suggestions that removing stimulus 'may become appropriate" meaning that Canada interest rates could be raised shortly; furthermore, growth forecasts were upgraded from 2.0% to 2.4%. The Bank of Canada Monetary Policy report is released today as well as the Bank of Canada's press conference both of which could cause further volatility for the Canadian dollar.