Daily currency report

Overview

The sterling recovered slightly as the Bank of England raised interest rates, while the dollar traded with great volatility due to a mixture of market data. After falling to two-month lows against the euro, the US market focus was on the US trade balance, which narrowed to $64.3 billion.

GBP
The Bank of England raised the benchmark interest rate for the second time in three months, bringing rates to five per cent, the highest they have been since September 2001. The bank said the UK had experienced four quarters of firm growth.

USD
The dollar was very unstable as a mixed bag of data sent the currency both ways. However, the dollar slipped lower after China governor Xiaochuan indicated China had a clear plan to diversify its foreign exchange reserves.

EUR
A growing number of ECB policymakers have expressed concerns about inflationary pressures persisting, even after the central bank has raised its benchmark rate by 1.25 percentage points since last December.

JPY
The Bank of Japan will gradually raise interest rates if economic recovery unfolds in line with its forecasts. Markets generally expect the BOJ to raise interest rates again some time in the first quarter of next year.

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