Sterling lost ground against the Euro and the US Dollar yesterday due to a decrease in risk appetite and further expectations that the anaemic UK recovery would make sure interest rate rises are behind the rising rates in the euro zone.
Some analysts have the view that the Euro could fall to the recent seven week lows against the Pound on speculation that Europe’s debt crisis will continue to hinder the single currency.
The Rightmove house prices that were released overnight on Monday showed asking prices for houses in England and Wales were at their highest in 3 years. This report gave the Pound a boost early in the morning before falling back as traders awaited the inflation figures.
The US Dollar’s recovery on Sterling and the Euro over the past weeks is due mainly to the lacklustre view on risk. The UK is suffering from poor growth and even a 3 year high in house prices isn’t enough to give the Pound a significant boost against the weak US Dollar.
Following the highs seen 2 weeks ago against the US Dollar, the Pound lost a considerable amount of ground against the US currency last week after the steep fall in commodity prices forced investors to head for the safety of the US Dollar and Japanese Yen.
Last week the Bank of England said that inflation could rise to 5 percent later this year, on these comment analysts are expecting the CPI to rise 0.7% this month which will leave inflation bubbling at 4.2%. Any less than a 0.7% rise today will see Sterling fall against the most actively traded currencies.
Sterling has been supported this morning due to higher than expected inflation data. The actual figure for April is 4.5% which is 0.5% up on March’s figure. The Pound has risen through 1.15 against the Euro and is currently testing 1.63 against the US Dollar.
Investors are hoping that such a buoyant UK inflation figure will prompt the Bank of England to raise interest rates sooner than expected. A quarter point rise is being priced into the markets as late as January 2012 which will be significantly after the euro zone’s next rate rise.
