Sterling falls as UK data disappoints

Published: 01 April, 2011

Sterling fell to a five month low against the euro yesterday as euro-region inflation data left investors betting that the European Central Bank will raise interest rates before the Bank of England.

Currency rates - April 1

EURO/GBP - 1.1339

US$/GBP - 1.6073
CHF/GBP - 1.4788
CAN$/GBP - 1.5566
AUS$/GBP - 1.5542
ZAR/GBP - 10.8530
JPY/GBP - 134.308
HKD/GBP - 12.5026
NZD/GBP - 2.1094

SEK/GBP - 10.1391
US$/EURO - 1.4170

Expectations have been that the ECB will start hiking rates in April, and yesterday's data cemented this. Analysts now feel that the euro could test last October's highs of 1.11/£1 against sterling as sentiment improves towards peripheral European countries and UK data disappoints. Against the US dollar sterling hit a high of $1.6152/£1, the strongest since March 24, boosted by data that showed house prices unexpectedly increased. Out today we have manufacturing sector activity data.

The euro performed well against other currencies on Thursday, after inflation data essentially confirmed rumours that the European Central Bank would raise interest rates in its next meeting. The euro reached a ten month high against the yen of ¥117.90/€1, the highest since May 2010. Analysts feel that the euro will stay strong in the short term, but towards the end of the year it should return to more normal levels. Out later today, there is European unemployment data.

The US dollar rose to a three-week high of 83.21 yen before running into selling by Japanese banks and foreign players. This return to more 'normal' levels of strength is a sign that the panic from the recent earthquake/ tsunami is beginning to die down. Following comments earlier in the week regarding US monetary policy from senior US officials, the prospects of higher interest rates in the US mean that Japan and the USA's interest rates are likely to take very different paths.

Elsewhere, following a stress test of Irish banks yesterday, it was revealed that Ireland needs €70bn to protect its banks from future shocks. The government promised a radical overhaul of the sector and promised a radical overhaul of the sector.

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