Daily currency report

The sterling gained as traders continued to price in a probable UK interest rate hike, while the greenback continued its recent recovery against the euro and the yen as prospects of a Federal Reserve rate cut continue to recede.

GBP

The pound shrugged off softer than expected inflation data to end up against all the other majors. Investors took the view that the BoE will nevertheless be obliged to further tighten monetary policy. CPI data revealed that consumer prices rose by only 0.3 per cent in May, bringing the annualised rate of inflation down to 2.5 per cent - closer to the MPC's two per cent target.

USD

The greenback continued its recent strong performance benefiting from a marked change in sentiment regarding economic fundamentals in the US. With recent data being resilient, prospects of an interest rate cut in near future appear to be remote.

EUR

With little data released to support the euro, traders sought better news elsewhere and consequently the euro ended the day down against the pound and the dollar. With inflation data to be released in several member states, traders are likely to wait for the release of the headline figure for the euro zone as a whole before assessing the probability of a further interest rate hike.

JPY

The yen again lost ground on the exchanges as traders continued to exploit low borrowing costs and seek higher yields in other markets. However, with the BoJ set to begin its two-day monetary policy meeting, there is a possibility that the yen's slide could pause, albeit temporarily.