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Sterling surges to eight week high

Published:  19 January, 2011

Sterling surged to an eight week high of $1.6060/£1 against the US dollar.

Currency Rates
EURO/GBP - 1.1901
US$/GBP - 1.6015
CHF/GBP - 1.5362
CAN$/GBP - 1.5856
AUS$/GBP - 1.5928
ZAR/GBP - 11.0165
JPY/GBP - 131.46
HKD/GBP - 12.4547
NZD/GBP - 2.0638
SEK/GBP - 10.6139
US$/EURO - 1.3455

Sterling surged to an eight week high of $1.6060/£1 against the US dollar.

It  came within touching distance of €1.20/£1 yesterday after December's Consumer Price Inflation (CPI) data came in much higher than was initially expected. Higher oil prices drove CPI to an 8-month high of 3.7% analysts expecting around 3.3%. This yet again boosted calls for an interest rate hike and as such saw sterling strengthen across the board as financial markets anticipated moves to tighten monetary policy as early as May. The Bank of England is walking a very thin line and is anxious to avoid stifling the fragile growth we are seeing with interest rate hikes. Financial markets can get a little carried away at the first sign of big shifts in policy, and as such it is important to recognise that the Bank of England will take some time to decide on the next steps. The next major focus is on the minutes from last week's meeting - released next week.

In the euro zone, the euro continued to post large gains against the US dollar after a huge jump in economic sentiment data from last month's reading. The German ZEW economic sentiment indicator gives an idea of confidence in the region and it shot up from 4.3 to 15.4 and as a result saw the euro hit a daily high of $1.3465/€1. Heavy buying of euros by accounts in the Middle East and rumours that Russia was considering buying Spanish bonds again also helped boost the currency, but it failed to capitalise after European finance ministers agreed to delay strengthening the region's rescue fund. Out today, there is current account data for the region.

In the USA, the US dollar was on the back foot today - falling by over 1% against both the euro and sterling at points, before recovering towards the end of the day. Data was pretty thin on the ground as the currency took it's momentum from UK and European events. However, there was some manufacturing data that showed a slight deterioration on last month. Be aware that volatility is back.

Elsewhere, continuing this week's focus on the joint Chinese/ US Presidential summit and currency discussions over China's artificially weak exchange rate, White House spokesman Robert Gibbs was yesterday quoted by Reuters as saying that "More must be done [to allow the Chinese yuan to strengthen]. That is an opinion that is held, not just by this country, but by many countries around the world". It seems that the US is beginning to tighten the pressure on Chinese President Hu Jintao, so keep an eye on things this week as it could get interesting.

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