Anyone requiring a Sterling transfer into another currency will be pleased to know that yesterday’s severe drop in the Pound has subsided as the currency has seen mild growth and regained some ground so far today. Mervyn King’s comments and yesterday’s inflation report did very much burst the bubble of hype over inflation and interest rates on Tuesday, however many banks have still shifted their forecasts forward for when a rate rise will occur, - taking into account both Tuesday’s 4% inflation figure as well as the Bank of England Governor’s restrained approach to interest rates as expounded in yesterday’s press conference.
Pound Sterling – UK Markets
Sterling plummeted yesterday as the Bank of England inflation report dampened the strong anticipation from Tuesday’s CPI inflation figures that an interest rate rise may come much earlier than expected.
The Pound has seen some gradual growth so far this morning however following yesterday’s shock. Although Mervyn King suggested that some were getting ahead of themselves suggesting an interest rate rise needs to occur soon, many bank economists have brought forward their forecasts for an interest rate hike. This is partly dependent on second-guessing where other members’ thoughts lie and Andrew Sentence has once more commented on his strong view that the bank should raise interest rates to curb inflation.
US Dollar – US Markets
The US Dollar dropped on Wednesday with safe haven flows due to tensions in the Middle East seeming to benefit the Swiss Franc rather than the US currency with the Dollar dropping 0.7 percent against the Franc.
Yesterday saw rising producer price index figures by 0.5 percent, much more than the predicted figure of 0.2 percent, which could suggest that inflation, will increase. Minutes from the last Federal policy meeting revealed that predictions for GDP growth will rise between 3.4 percent and 3.9 percent in 2011.
Euro – European Markets
Following a strong run against the dropping Pound yesterday, the Euro has been declining against most of its counterparts on fears over Eurozone banks and debt worries. Moody’s ratings agency have also suggested that that German Commerzbank may be on review for a possible downgrade which will not have helped.
There was also more caution towards the Euro ahead of a Spanish debt auction.
Tensions between Israel and Iran have encouraged investors to put funds into a safe haven whilst the uncertainty continues with the Swiss France accelerating in strength.
Other Currencies – Highlights
The South African rand has advanced to its strongest level in over a week as the price of gold increased for a fourth day.
Concerns over the recent spate of rising inflation figures across the globe is creating higher demand for precious metals as a hedge against inflation – and in turn sending currencies linked to these commodities such as the Rand upwards.
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The US Dollar Weakens Amid Market Correction Ahead of Key Data