Sterling hits two week high against dollar

Published: 22 March, 2011

Sterling hit a two week high against the US dollar and is set to test the highest levels for over a year if inflation figures today come in higher than expected.

Currency rates

EURO/GBP - 1.1470

US$/GBP - 1.6337
CHF/GBP - 1.4778
CAN$/GBP - 1.5949
AUS$/GBP - 1.6163
ZAR/GBP - 11.2765
JPY/GBP - 132.50
HKD/GBP - 12.7416
NZD/GBP - 2.2032

SEK/GBP - 10.2253
US$/EURO - 1.4239

UK consumer price index, CPI is expected to grow to 4.2% in February, up from 4.0% in January and nearly double the Bank of England's target level of 2.5%. This further supports the case for an interest rate hike and as such, sterling has performed well against both the US dollar and euro. Markets are likely to wait until Wednesday's Budget and Bank of England minutes before making a full assessment of the UK's interest rate expectations.

In the euro zone, the euro hit a four-and-a-half month high against the US dollar yesterday, breaking above $1.42/€1 after further comments from key ECB policymakers suggested the European Central Bank will target an interest rate hike as early as next month. ECB President Trichet spoke yesterday and reaffirmed his views from the last meeting, which were that inflation is at a level that requires an interest hike.

In the USA, data showed that existing home sales fell by far more than had been expected. The US housing recovery is likely to be a long, drawn out process and as such these figures do not help things. Out today, one of the Federal Reserve policymakers speaks in Dallas which could see some volatility.

Elsewhere, positive news from the Japanese nuclear reactors saw investors return to riskier, higher yielding assets. In addition, fears over another large scale intervention by the G7 nations or even the Bank of Japan on its own has kept the yen away from all-time highs. .

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