Sterling moved sharply higher across the board and breached 6-week highs against the under pressure euro. The pound received a shot in the arm after Bank of England Quarterly Inflation Report revealed that inflation could remain persistently above target levels for longer than expected. High inflation not only reduces the BoE’s ability to revisit quantitative easing but also raises the need for a raise in interest rates, a scenario which is sterling positive. The euro continued to face broad selling pressure as eurozone sovereign debt worries simmer. Investors have become increasingly reluctant to deal with smaller member nations such as Ireland and Portugal. The single currency also fell to five-week lows against the resurgent US dollar after better than expected weekly jobless claims and export data increased the US currency’s allure.
Sterling
Sterling rebounded sharply higher against the US dollar and continued it ascent against the broadly under pressure euro reaching six-week highs. Support came from the Bank of England’s Quarterly Inflation Report which helped reduce the capacity for the UK’s central bank to expand quantitative easing measures anytime soon. The BoE forecasts inflation to hold above its two per cent target well into next year which will support hawkish members of the MPC calling for an interest rate hike.
US dollar
US dollar gains eased heading into G20 discussions currently underway in South Korea. China allowed its tightly controlled currency to rise to its strongest level against the US dollar since 1993, a move possibly designed to appease world leaders trying to resolve currency tensions. However, earlier in the day the greenback continued to recover from recent record lows and even managed to peak at five-week highs against the euro.
Euro
The euro steadied after coming under another wave of pressure as eurozone debt problem mount. Focus on G20 discussions, which began overnight, helped ease selling pressure although global investors remain deeply concerned about peripheral member nations. Underscoring worries over finances in parts of the euro area, the single currency fell to six-week lows against sterling.
Japanese yen
Dreadful manufacturing data added to a growing list of disappointing Japanese economic indicators. Key machinery orders for September fell at their fastest rate since March 2009. Encouragingly though, the yen fell to one-month lows against the US dollar with the greenback finding further momentum from encouraging US export data.
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