Daily currency report

The sterling rose to a one-month high against the euro and a two-and-a-half-year high against the US dollar as investors look to the BoE's policy meeting. Elsewhere, it was disappointing for the yen, falling by almost 0.5 per cent against the dollar and to a five-week low against the euro, which continues to be punished for the lack of return on investment in the currency.

GBP

The pound posted a series of gains versus the other major currencies as investors began to price in the possibility of a quarter point interest rate hike from 5.25 to 5.5 per cent. Many economists believe that even if there is no change tomorrow, a possible hike will merely be deferred to May.

USD

Mixed US data did little to sway expectations for the Federal Reserve to trim US interest rates later on in the year. The Fed will now have to decide between controlling inflation, which remains persistently high, or stimulating economic growth, with evidence beginning to mount of an economic slowdown.

EUR

The euro lost ground against the sterling, but held steady versus the dollar and even rose to a five-week high against the beleaguered yen. According to traders, an interest rate hike is unlikely to happen this week, but that an increase to four per cent could happen possibly as early as June this year.

JPY

The yen again lost ground versus the other majors, as traders continue to invest in other, higher-yielding currencies, often by borrowing in yen. Consequently the yen continues to slide in value on the exchanges, with the sterling and the Australian dollar remaining the principal beneficiaries.