This is the best time in over a year to make a Sterling transfer into US Dollars following a significant drop in the dollar matched by a surge in Sterling on the back of staggeringly high inflation figures released in the UK this morning. If you have a Sterling to Dollar transfer in the future, it is a good time to check in with your broker now and find out about fixing rates of exchange with a forward contract to make sure that you don’t miss out. This morning’s inflation figure up at 4.4 percent will add renewed pressure to the Bank of England to raise interest rates.
Pound Sterling – UK Markets
Sterling has seen a surge overnight and this morning as CPI data revealed that inflation had grown to a staggering high of 4.4 percent. The Pound in particular is at its strongest levels against the Dollar since early 2010.
The inflation figure at 4.4 percent is over twice the Bank of England target of 2 percent and also higher than the official forecast of 4.2 percent. It also demonstrates another move upwards from last month’s figure of 4 percent. The soaring figure will suggest to markets that an interest rate rise may be forced from the Bank of England in early summer and has helped flout thoughts that this would be pushed back later into 2011.
This morning’s retail price index also came in showing above forecast growth for February with monthly growth at 1 percent.
Apart from the budget tomorrow, the Bank of England minutes released at 9.30am will be crucial for Sterling. Last month, the minutes revealed that three members voted for a rate hike. Should another member have joined the vote for a rate rise this time around, we could see some more Sterling upwards momentum.
US Dollar – US Markets
The Dollar Index, which measures the Dollar against its other major currency counterparts, has fallen to a fifteen month low. The Euro has reached four and a half month highs on the US currency whilst Sterling has reached its highest levels since January 2010.
This broad downwards pressure on the Dollar has suggested to some analysts that the its safe-haven status has all but vanished of late. A slump in US existing home sales which are at the lowest level in 9 years and the fact that there are no immediate expectations for an interest rate rise in the US in comparison to Europe where a rise is expected as soon as next month, and the UK where a rise is expected in the summer are adding further pressure.
Later today sees a speech by Geithner, Secretary of the US Department of Treasury on how he observes the current US economy.
Euro – European Markets
The Euro has soared against the US Dollar as expectations rise that the European interest rate hike will come next month following comments from ECB board member Gertrude Tumpel-Gugerell and council member Yves Mersch that strong vigilance was necessary to keep down inflation.
There have also been comments to suggest that economic uncertainty due to events in Japan, will not, as some have expected, push back when Europe might make a rate rise. ECB Governing Council member Guy Quaden is due to speak in Brussels today.
Tomorrow sees industrial new orders data from Europe in the morning followed by consumer confidence figures in the afternoon.
Other Currencies – Highlights
The Canadian Dollar surged against the US Dollar by the most in almost seven weeks as crude oil prices continue to rise as turmoil in North Africa and the Middle East continues.
As well as the rising oil prices, the Canadian Dollar is also benefiting from the return to riskier currencies as the nuclear crisis in Japan is coming further under control.