Sterling hits three month high due to strong data

Published: 03 February, 2011

Sterling hit a three month high against the US dollar yesterday, touching $1.6232/£.

Currency rates

EURO/GBP - 1.1744

US$/GBP - 1.6224
CHF/GBP - 1.5296
CAN$/GBP - 1.6012
AUS$/GBP - 1.6003
ZAR/GBP - 11.5997
JPY/GBP - 132.34
HKD/GBP - 12.6357
NZD/GBP - 2.0988

SEK/GBP - 10.4210
US$/EURO - 1.3811

Strong data and positive comments from policymakers gave rise to expectations of interest rate hikes sooner than expected.Construction figures showed that activity returned to growth last month, with the numbers easily beating expectations. Andrew Sentance (who has been advocating interest rate hikes for some time) warned against delaying a rate rise and deputy Governor of the Bank of England, Charles Bean warned that a rate rise would be inevitable if commodity prices continued to rise. Markets are now pricing in a potential rate rise in May - with some expecting a hike next week. A key level is the November high of $1.63/£1 - if sterling breaks through this, it opens up the road to further gains.

In the euro zone, the euro slipped against both sterling and the US dollar on uncertainty surrounding a euro zone rescue plan and profit taking by investors following the euro's recent gains. There was talk that the euro zone was considering allowing its rescue fund purchase debt from distressed countries, but a German official stated that Berlin was not happy allowing this to happen. This uncertainty, combined with the situation in Egypt and the Middle East saw traders closing out profitable positions after the euro hit a 2 ½ month high against the US dollar.

In the USA, yesterday's ADP non-farm payroll figures came in better than expected, showing an increase of 187,000 jobs against an expectation of 147,000. The US dollar also gained against the euro following the uncertainty over the European rescue plan, but also as the currency regained its 'safe haven' status in the face of growing uncertainty in Egypt.

Elsewhere, the Swiss franc has also seen some risk related buying. Investors traditionally look to safe currencies in the event of market risk, such as what we are seeing in Egypt. In addition, overnight into tomorrow we have the Reserve Bank of Australia's interest rate policy statement which could be quite interesting.

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