Daily currency report

The dollar held near a 26-year low against the pound and was also at a two-month trough versus the euro. While the BoE is widely expected to lift rates to 5.75 per cent with the MPC beginning their two-day meeting, the ECB interest rate decision is slightly harder to predict, with interest rate decision also due.

GBP
The pound should remain high as the BoE interest rate decision due is expected to lift rates by 0.25 per cent to 5.75 per cent. With inflationary pressures still a worry for the Bank, money markets are signalling a further rate rise at some point this year to take the borrowing costs to six per cent by the end of the year. A 0.25 per cent increase would be the fourth rise since August, taking it to the highest level in six and a half years.

USD
With the US on holiday for Independence Day, trading should be quiet. However, with very important and market moving information scheduled for release, traders will be waiting for markets to reopen to see what direction the US dollar will take.

EUR
Expecting the release of the ECB interest rate decision, the recent rise in the single currency's value may reduce the CB's urgency to increase interest rates this month.

JPY
The yen is stronger across the board after comments from BoJ board member Nishimura, hinting the possibility of a rate hike by saying that "keeping rates low for a long time is not prudent". With no major Japanese economic data, moves in the yen crosses will primarily be dependent upon the demand for carry trades.