Budget to show public finances performing well

Published: 23 March, 2011

Consumer Price Index CPI, inflation hit the highest level since October 2008 yesterday, and saw sterling hit a new 14 month high of $1.64/£1.

Currency rates

EURO/GBP - 1.1545

US$/GBP - 1.6353
CHF/GBP - 1.4722
CAN$/GBP - 1.6059
AUS$/GBP - 1.6211
ZAR/GBP - 11.3053
JPY/GBP - 132.03
HKD/GBP - 12.7495
NZD/GBP - 2.2109

SEK/GBP - 10.3404
US$/EURO - 1.4169

Higher than expected inflation saw renewed calls for an interest rate hike, with markets pricing in a hike by the Bank of England as early as May. Whilst it is all too easy to get carried away by the headline grabbing inflation figures, the Bank of England is unlikely to budge just yet. Analysts are expecting today's Budget to show that public finances are performing better than forecast - the cynics amongst you would argue that the government deliberately painted as bleak a picture as possible to start with. Today will be interesting - minutes from the Bank of England's March meeting and the Budget, but don't expect Mervyn King to bow to the will of the markets and hike interest rates just yet.

In the euro zone, the euro slipped after hitting a four-and-a-half month high against the US dollar yesterday. The single currency hit $1.4249/€1 before sliding on profit taking by investors; however it is unlikely to fall too far given rate expectations. Markets are expecting an interest rate hike next month, and given comments by key ECB policymakers this is a virtual certainty. We could see some movement against sterling depending on the outcome of the UK Budget.

In the USA, it was a relatively quiet day for data, but the US dollar slid across the board with the US dollar index (a measure of the currency against a 'basket' of other currencies) hit a 15 month low. Against the Japanese yen, the US dollar finished slightly down but a way away from the lows that saw the G7 nations intervene in the currency markets on Friday.

Elsewhere, the New Zealand dollar outperformed in overnight trade gaining on average 0.5% against major counterparts. This followed a report by the IMF that estimated the country's economy would grow by 4% next year as the country begins a wide programme of rebuilding following the earthquake.

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