Sterling rose against a broadly weaker Euro yesterday on speculation that Ireland and Greece may have to restructure their debts. The Pound managed to claw its way back from the 5 month low seen on Wednesday to a high of 1.1350 seen at midday. The gains were short lived as markets were pricing in further interest rate rises from the European Central Bank later this year which saw the Pound fall back to below 1.13.
British consumer confidence was slightly better in March than the record low hit last month which has seemed to benefit the Pound against the US dollar, although the less than impressive figures are likely to enhance views that the Bank of England will keep the interest rates at 0.5%.
Expectations that the Federal Reserve will continue with their loose view on further quantitative easing has seen the US dollar weaken against a basket of currencies. The US dollar was trading at the lowest levels seen in over 15 months and the Pound was able to quickly capitalise and reach a high of 1.6380 on Thursday.
Despite negative comments from the ECB regarding the Euro zone debt problems the single currency managed to trade well throughout the day against the US dollar. Negative sentiment surrounding the US has made the dollar an easy target for the likes of the robust Euro. The Euro retreated early in the day but by close of London trading at 17:30 GMT, the high of the day is almost back in sight at 1.45.
There is no economic data out for the rest of the week and so far the Pound is being driven by the movements of other major currencies. Traders will be looking toward Wednesday’s Bank of England minutes for an insight on what they are planning to do with the interest rates. Although following the unexpected fall in inflation seen on Tuesday, it looks like the chance of an interest rate rise is very slim.
With investors now pricing in a 25 basis point interest rate rise as late as October, the original target of a rise in May seems somewhat redundant. The next inflation report in the UK will be watched closely, if inflation falls again the Pound will fall with it.
