Daily currency report
Overview
With the US and Japanese markets closed on January 2, the euro and the sterling were the major winners across the exchanges. It was the prospect of higher yields that drove the movement, with investors convinced that the ECB and the BoE are set to increase rates again early in 2007.
GBP
The sterling rose against the dollar, buoyed by data that revealed house prices had risen 6.8 per cent in November. The pound is likely to remain well supported as speculation of an interest rate hike in February continues to grow.
USD
Economists are still pricing in at least one rate cut from the Fed this year and minutes from the central bank's December meeting could help clarify the outlook. A reading below 50 in the December US ISM manufacturing report would reinforce concerns about an economic slowdown and could hurt the dollar.
EUR
The ECB is widely anticipated to lift rates from 3.5 per cent to 3.75 per cent in the first quarter of this year. An ECB board member indicated that interest rates in the eurozone will rise.
JPY
Central bank deputy governor Toshiro Muto said that there is a good chance that the current expansion of the Japanese economy can be sustained, as production, income and spending remain sturdy.