Sterling hits 11 week high against dollar

Published: 02 February, 2011

Sterling shrugged off last week's poor GDP and concerns over the situation in Egypt to hit an 11 week high against the US dollar of $1.6143/£1.

Currency rates

EURO/GBP - 1.1687

US$/GBP - 1.6180
CHF/GBP - 1.5128
CAN$/GBP - 1.5991
AUS$/GBP - 1.5990
ZAR/GBP - 11.4896
JPY/GBP - 130.72
HKD/GBP - 12.6004
NZD/GBP - 2.07165
SEK/GBP - 10.3067
US$/EURO - 1.3840

Manufacturing purchasing figures surged to the highest level since the survey began in 1992 and led to markets pricing in a 70% chance of an interest rate hike as early as May. There is increasing belief in the idea that the cost of long term inflation would outweigh the benefit of leaving rates on hold. We are starting to see support for a 0.25% rate hike to curb inflation and at the same time maintain growth. However, mortgage approval figures were poor and sterling is still likely to remain very sensitive to negative data, so there is still a large risk that it could drop back down.

In the euro zone, the euro continued to strengthen against the US dollar spurred on by strong manufacturing data around the world and the subsequent boost that this gave to appetite for riskier investments. In addition, banks in the euro zone borrowed over €200bn from the European Central Bank fund this week - a move that will keep high liquidity in the region's banks and has kept investors happy. Released today there is producer price inflation for the region, which could be fairly interesting.

In the USA, it is a relatively quiet day for data against a busy week. Today sees the ADP non-farm employment change - generally seen as the less important of the 2 figures released this week, the other being on Friday. However, last month's figure showed a 200,000 surge in employment that set up the markets for the Friday figure which ultimately was very disappointing.

Elsewhere, the Japanese yen fell in Asian trade overnight as risk appetite around the world saw investors selling the traditionally 'safe haven' currency.

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