Daily currency report

Benefiting from favourable interest-rate differentials and a better growth outlook in the UK, the sterling had a great week as it burst through a key level, when it was ejected from the European exchange rate mechanism, while the dollar edged up against the euro and pound helped by rallying US stock prices.

GBP

The sterling briefly dropped against the dollar, after data showed British retail sales growth dipped in March to 0.3 per cent, less than the forecast for a 0.5 per cent rise, but quickly bounced back as the figures did not alter expectations for higher British interest rates. With evidence of rising price pressures, investors still expect the BoE to rise rates in May and probably again later this year.

USD

The dollar dropped to a 27-month low against the euro as signs of slowing inflation and growth lessen the currency's appeal. The US currency also tumbled to its weakest level against the British pound in 26 years, as investors bet the Federal Reserve will cut borrowing costs later this year while the ECB and BoE raise rates.

EUR

The euro hit a two-year high against the dollar, coming within half a cent of a lifetime peak. Although eurozone interest rates are below those in the US, the region's robust growth and inflation pressures are likely to prompt the ECB to raise rates again in June.

JPY

The yen recovered a little, pulling further away from a record low hit against the euro, as an upgrade in Japan's sovereign rating and maturing euro bonds spurred investors to buy back the currency.