Daily currency report

UK inflation figures revealed a fall in consumer prices, sending the pound lower as chances of an interest rate hike in the near future decreased. Ultimately an increase in risk appetite saw the pound strengthen as the session progressed, closing in on one-month highs against the US dollar as risk appetite and a rally in equity markets were the main causes of the US dollar's downward spiral. The euro managed to hold onto gains on the back of well-received bond auctions in Belgium, Spain and Ireland. The success of these sales came despite the German ZEW investor sentiment index disappointing investors coming in well below forecast at 28.7.

Sterling

Inflation data showed a smaller than expected increase in prices last month which sent the pound lower in early trading. The pound then rebounded as speculation of a possible shift in the UK monetary policy dissipated. According to the Bank of England, CPI inflation has been well above its two per cent target due to the restoration of the VAT rate to 17.5 from 15 per cent, higher gas prices and depreciation of the pound.

US dollar

The dollar, driven by stock market flows, was sent lower as risk appetite improved.

Euro

The euro has weakened slightly as the release of the ZEW investor sentiment came in well below expectations. Germany's economic sentiment index came in at 28.7 instead of a forecasted 42 and well off the prior month's 45.8. Investors are increasingly weary of the austerity measures that are being put in place as they still think these may hinder the growth outlook for the German economy. Still, despite the gloomy sentiment from investors data on the ground indicates that demand for business is picking up.

Japanese yen

Stock markets in the Asia-Pacific region rose, and the Nikkei 225 index in Japan climbed above the 10,000 mark for the first time in nearly a month, extending a rally of more than two per cent on Wall Street overnight. The yen rose against the dollar however, as risk appetite spread; it lost ground against riskier currencies such as the euro, pound and Australian and New Zealand dollars.