Daily currency report

The dollar extended its losses against higher yielding currencies for the second consecutive day, hitting a fresh 26 year low against the GBP and was down against the euro.

GBP
The sterling extended gains against a broadly weak dollar hitting a fresh 26 year high on the back of comparatively attractive interest rate and yield differentials. In contrast to the US, analysts are pricing in one more interest rate rise in the UK where interest rates are already the highest in the G8 group at 5.75 per cent.

USD
The dollar fell to multiyear lows against higher-yielding currencies and remained near record lows against the euro as investors braced themselves for data expected to show declines in home construction and inflation, with some analysts predicting that weakness in the housing sector combined with slowing inflation may lead the Fed to reduce interest rates early next year.

EUR
The euro slipped as data showed euro zone inflation had remained below the ECB's two per cent target ceiling for the tenth month in a row. Annual inflation growth stood at 1.9 per cent in June, in line with expectations, although the CB expects inflation to rise above its ceiling later in the year, Monday's data gave investors the chance to take some profits.

JPY
With Japan closed for Oceans day, there was little movement on the currency. Previous day trading saw the yen rallying against the dollars with some unwinding of carry trades. The bounce was short lived; however, after the BoJ's voted in favour of holding interest rates at 0.5 per cent, denting expectations of an August rate rise.

Commercial Foreign Exchange Travelex Malta, freephone: 800 77 33 22, www.travelex.com/mt/