Sterling Rallies As UK Quarterly Inflation Report Released

The Pound has experienced an instant rally this morning as the key quarterly inflation report was released. Sterling has already moved from the 1.159 levels against the Euro to 1.167. The move is not quite as acute against the Dollar although the Pound has made some ground back this morning following its drop to a one week low against the US currency. The report suggested inflation will remain above target throughout 2011 which markets will believe will increase the chances of an interest rate rise in the UK.

Pound Sterling – UK Markets

This morning’s inflation report and speech by the Bank of England Governor suggested the UK will not slip into a second recession dip with the Pound seeing an instant rally. The timely report followed higher than expected UK producer price index data on Friday which measures the rate of monthly inflation. Whilst higher than expected inflation has been a problem for the Bank of England and Mervyn King this morning has warned that the cost of living will continue to rise over 2011, markets will be assessing this as increasing the chances of an interest rate rise in the UK and a move away from any chance of a double dip recession. The Pound’s ascent on the Euro so far this morning has been a steep climb so speak to your broker today regarding any Euro transfers. Sterling closed yesterday at $1.61709 and had fallen to a one week low against the US Dollar although in general terms this is still the best time since 2009 for Sterling to Dollar transfers.

US Dollar – US Markets

The Dollar is vulnerable today with a huge volume of data releases due. It had strengthened in yesterday’s trading although the UK inflation report has caused an upwards Sterling movement. This is the largest amount of individual data releases in a single day in a while. Early this afternoon sees mortgage application data, import data and both initial and continuing jobless claims. Perhaps even more significantly early afternoon also sees the US trade balance followed this evening by the monthly budget statement. Taken overall, markets will be looking to see what affect the weak Dollar has had on US exports and whether it has helped guide the US economy back into recovery. The monthly budget statement will also be of interest following the recent quantitative easing decision.

Euro – European Markets

The Euro has dropped lower against major currencies as uncertainty about sovereign debt persists with Portugal’s auction of up to 1.25 billion Euros bonds today and poor German data yesterday. Germany has been the strongest nation in the Eurozone but yesterday’s lacklustre consumer prices report only reported an increase of 0.1 percent. Markets will be closely watching the Portuguese debt auction to see how successful this is. ECB President, Jean-Claude Trichet has been expected to outline measures to move ahead with the process of withdrawing stimulus measures which were introduced at the height of the global financial crisis in a speech in Lyon today. This has driven the Euro lower on fears that the move would hurt Eurozone growth prospects.

Other Currencies – Highlights

China has announced a year-on-year growth of 22.9% growth in exports for October. Whilst imports also grew by 25.3%, the Chinese were left with a trade surplus of $27.1 billion. Many criticise the Chinese for holding down the value of the Yuan artificially with estimates for its true value being between 20 and 40% higher than its current value. The issues of international currency rates and trade imbalances will be a major talking point at this week’s G20 leaders meeting. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.