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Sterling boosted by further interest rate hike speculation

Published:  17 January, 2011

Sterling had a strong finish to the week, closing at a one month high against the US dollar after speculation over a UK interest rate hike helped boost the pound.

Sterling had a strong finish to the week, closing at a one month high against the US dollar after speculation over a UK interest rate hike helped boost the pound. 


Currency rates


EURO/GBP - 1.1937

US$/GBP - 1.5863
- 1.5302
- 1.5687
- 1.6026
- 11.0125
- 131.492
- 12.3171
- 2.0604
- 10.5800
- 1.3291


Higher than expected producer prices, that came in at 4.2% against an expected 3.9%, gave further reason for investors to expect an interest rate hike from the Bank of England sooner rather than later as inflation remains stubbornly high. Sterling also strengthened against the euro despite speculation that the European Central Bank might also need to raise interest rates sooner rather than later. However, given the current situation in the euro zone, talk of interest rate rises seems a little premature. This week sees some key data releases - inflation on Tuesday, unemployment on Wednesday and 'official' retail sales data on Friday.


In the euro zone, it seemed the region breathed a sigh of relief at the close of a turbulent week for the euro. Successful bond auctions from Portugal and Spain saw the euro strengthen by 3.8% against the US dollar on the week - the best performance for 1 ½ years - as fears eased over the credit crisis in the region. Many analysts starting getting a little euphoric and talking about a euro rally towards $1.50/€1, but there are some serious issues in the region that cannot be fixed by 1 or 2 successful bond auctions. A meeting of EU finance ministers kicks off today, with many sceptical that a quick fix to the situation will be found. Watch this space, as a minor spark could see somebody heading to the EU and IMF for a bailout again.


In the USA, it is set to be an interesting week ahead. Chinese President Hu Jintao is set to meet Barack Obama for a summit in Washington this week. The discussions are almost guaranteed to revolve around currency and global trade. China has come under pressure from the USA in recent months over the pegged exchange rate that has kept China's exports artificially cheap - clearly US manufacturers have been getting a little 'hot under the collar', so the discussions should be interesting.


Elsewhere, with floodwaters still causing havoc, Australian inflation slowed to3.8% in December according to an estimate by TD securities and New Vehicle Sales fell by 3.1% in the month too. There is potential for a sterling recovery against the Aussie dollar so get in touch now for a live exchange rate.

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