Daily Currency Report
Overview
Although inflation is still high, the Bank of England might chance at refraining from raising rates in March as is widely expected by the market. In Europe we have the German ZEW investor sentiment and eurozone industrial production expecting a slight rise from the previous months numbers.
GBP
The sterling fell to a one-month low against the dollar as an unexpectedly big fall in producer input prices cast some doubt on the rate of consumer price inflation and chances of more rate hikes by the Bank of England in the near future.
USD
The dollar slid against all the major currencies especially the yen even though it was expected to gain strength after the summit as analysts had hoped that the G7 would go further than just warn market players to consider the risks tied to Japan's economic recovery. The dollar had got a boost after US Treasury Secretary Henry Paulson told a German newspaper that a strong dollar was in the country's interest.
EUR
The 0.9 per cent acceleration of the GDP growth in the fourth quarter of 2006 helped push the euro up against both the dollar and the yen, and with the market expecting euro rates to go up soon the euro could be in for a rise over the coming months.
JPY
Japan's foreign exchange policy is unchanged after the G7 meeting, but many market players were disappointed that the G7 did not specifically address the decline in the yen, and only repeated the wording used at last year's G7 meeting in Singapore that currency moves should reflect economic fundamentals, and that excess volatility and disorderly exchange rate moves are undesirable.