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Sterling rises against Dollar

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Sterling was a major beneficiary of the euro’s rebound yesterday, following in its footsteps as it rose against the dollar. It was lifted by Eurozone inflation data and comments from BoE policy maker Martin Weale, which caused speculation that a rate hike in both the EU and the UK will come sooner rather than later.

Sterling was able to shake off the potential dampening effect of the turbulence in Egypt as robust factory activity data out of the US set a positive tone for the rest of the week’s US data, including non-farm payrolls on Friday, balancing risk appetite. However, with danger of uprising spreading in the Middle East, traders warned of continued volatility in the week ahead.

This morning the UK nationwide housing data was slightly up month on month but down by 0.1% for the year on year prediction. This data should have little fundamental impact, as the UK housing market has been under pressure all year, but the data has caused a small drop against the euro since 7am.


The dollar lost ground against sterling and the euro yesterday as speculation of rate hikes in the Eurozone and UK contrasted with the ultra-loose policy of the Fed. The monetary policy stance of the Federal Reserve has diminished demand for the dollar despite less risky assets typically being beneficiaries of the type of political turmoil and uncertainty we have been seeing in Egypt. Surprisingly strong US factory data may have supported risk appetite as investors feel that this could signal a run of positive data out of the US this week, solidifying hopes of recovery in the US and globally. As such eyes will be on the US manufacturing survey today as well as Friday's monthly payroll data.


The single currency clawed back its recent losses against the dollar yesterday but ceded some ground to sterling. The euro crept back towards almost a two month high against the dollar yesterday after a jump in Eurozone inflation figures caused more speculation of interest rate hikes and the risk aversion due to the political events in Egypt fell away slightly. The inflation data, combined with the fact that ECB president Jean Claude Trichet warned about price pressures last week all point towards hikes. Investors will look towards his speech after the ECB's monthly meeting today for further indication of policy. Reports over the weekend that the European Union was working on a solution to reduce Greece's debt burden also helped boost the euro, with the recent EFSF bond auction being seven times oversubscribed.

The euro fell versus the pound due to interest rate hike speculation and the fact that the UK is not as affected by sovereign debt issues as countries in peripheral Europe.

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