Daily currency report

The dollar was the big winner across the board as it strengthened against most of the major currencies. The G8 leaders discussed foreign exchange rate concerns and expressed further concerns over the competitiveness of the Chinese currency.

GBP
The sterling lost ground against both the dollar and the euro after as expected the BoE kept the UK interest rates on hold at 5.5 per cent. This prompted investors to take profit (by selling the pound) as the sterling had had been falsely strengthened ahead of a surprise rate hike. Interest rates are expected to be increased to six per cent by the end of the year so as to put inflation back to somewhere near the two per cent target.

USD
The dollar rose against most major currencies as expectations for solid global economic growth pushed US government debt yields above five per cent, which decreased their price and proved very attractive for foreign investment.

EUR
The euro strengthened against the pound as many traders took profit after the BoE interest rate decision. Growth in the eurozone is likely to stay around 3.5 per cent in 2008 and 2009, according to an ECB Council member.

JPY
The yen fell for the first day this week during overnight Japanese trading as Japan's top currency official said there is no immediate concern that investors will sell assets funded in yen. With Japanese interest rates being at a low level of 0.5 per cent, many traders borrow the yen and then either swap it or use it to buy other higher yielding assets.