Subscriber login Close [x]
remember me
You are not logged in.

Sterling jumps due to speculation of May interest rate rise

Published:  18 January, 2011

Sterling jumped to an eight week high against the US dollar and moved up against the euro after speculation that the Bank of England could raise interest rates as early as May.

Sterling jumped to an eight week high against the US dollar and moved up against the euro after speculation that the Bank of England could raise interest rates as early as May.

Currency rates

EURO/GBP - 1.1960

US$/GBP - 1.5971
CHF/GBP
- 1.5315
CAN$/GBP
- 1.5722
AUS$/GBP
- 1.6002
ZAR/GBP
- 10.9607
JPY/GBP
- 131.74
HKD/GBP
- 12.4209
NZD/GBP
- 2.0674
SEK/GBP
- 10.6525
US$/EURO
- 1.3350

Sterling hit $1.5953/£1 and €1.1974/£1 as traders speculated that tomorrow's Consumer Price Inflation could show inflation close to 4% - 2% above the Bank of England's target level. The dilemma being faced by policy makers is that any interest rate hike could dent the UK's fragile recovery - especially as the recent VAT hike and cuts have yet to take full effect. A higher than expected CPI figure is likely to see further sterling strength later today so ensure you call in now for a live exchange rate.

In the euro zone, the euro fell broadly yesterday after investors reassessed ECB President Jean-Claude Trichet's call for interest rate rises last week and also saw that no 'quick-fix' was to be put in place for the euro zone's bail out fund. The majority of finance ministers in the region today called for an increase in the lending capacity of the emergency fund to €700bn, but Germany was reluctant to push through urgent changes citing a calmer bond market and an aim to discuss 'anti-crisis measures' in more depth in March. Germany clearly does not want to increase the rescue fund, and as such sentiment towards the single currency slipped. 

Trading conditions were pretty thin in the USA with a public holiday, but off the back of euro weakness, the US dollar was up 0.65% against the euro but dipped against sterling on interest rate expectations. It did not see much reaction to comments from top Federal Reserve official Charles Plosser who did not rule out an interest rate rise in 2011 - it seems everyone wants to jump on the interest rate hike bandwagon. Out today, we have some manufacturing data and figures on foreign investment into the USA. 

Elsewhere, on the eve of Chinese President Hu Jintao's visit to the USA for a summit with President Obama, a group of senators are looking to re-introduce a bill to combat China's currency policies. Senator Charles Schumer said that the artificially low exchange rate was like a "boot on the throat" to the US economic recovery as it gave Chinese exporters an unfair advantage over their US counterparts by artificially keeping the goods cheaper internationally.

Smart Currency Exchange is a currency partner to Harpers Wine and Spirit. Harpers Wine and Spirit has teamed up with Smart to provide readers with a free bespoke currency service.

If you are making or receiving international payments and are interested in talking to Smart please go to: www.SmartWineSpirits.com to get a FREE no obligation quote or to download the Smart Wine and Spirit report. Alternatively call Smart on 0207 898 0500.

Keywords: