Daily currency report

Market news was dominated by the fact that the pound failed to increase gains on the euro and the dollar, despite a 25 basis point interest rate hike.

GBP

The pound failed to capitalise on the widely anticipated 0.25 per cent UK interest rate hike and, ultimately, on Friday fell to a two-week low on a trade weighted basis. This was primarily due to investors, disappointed by the fact that the sterling had not increased rates by 0.5 per cent, unwinding carry trades. This week, all attention will be focused on the BoE's inflation report, which will be crucial in forming the UK rate expectations.

USD

The dollar fell as a result of an unexpected drop in US retail sales in April. In addition, the dollar was sold as investors shifted their attentions to higher yielding currencies. Investors still are cautious of the Federal Reserve trimming their rates from the current 5.25 per cent in an attempt to reverse a slowdown in the economy.

EUR

This week sees the release of GDP data for the first quarter and inflation data. The latter is forecast to be confirmed at 1.8 per cent for April, slightly weaker than the 1.9 per cent in March. With analysts believing that the prices will rise towards the ECBs ceiling of two per cent later in the year, policymakers are on track to deliver another rate hike in June to four per cent with further rate hikes possible later in the year.

JPY

Despite tepid inflationary pressure, the BoJ is likely to keep interest rates steady this week. Making it difficult for the Bank to justify a rate hike are recent falls in consumer prices, which have been slow to respond to a healthy economic recovery.