Daily currency report

Overview

Sterling gains were capped by weak growth data, but supported by slightly more hawkish minutes that were released by the Bank of England. The vote to leave interest rates on hold was 7-2, but the fact that Sentance was not the lone dissenter to raise rates surprised markets. The Fed’s FOMC policy announcement and statement was bang in line with market expectations and as a result became a non-event for currency markets. In the eurozone, Jean-Claude Trichet commented again from Davos that the central bank was vigilant on second round effects, which can contribute to higher prices and dislodge price stability.

Sterling

Recent UK data has left investors sitting on a fence with sterling. On the one hand the Bank of England minutes presented a more hawkish committee while on the other hand, the contraction of Q4 GDP data seen earlier in the week has limited the currency’s upside. Sterling did manage to lift itself off two and a half month lows against the euro after the minutes were released.

US Dollar

The US dollar remains near two month lows against the euro and one month lows against the Swiss franc. The FOMC policy announcement and following statement was very much in line with market expectations which left trade in the dollar uninspired. The dollar opens up near last night’s closing levels against most major crosses.

Euro

The euro remains near two month highs against the US dollar based on contrasting monetary policy outlooks. European Central Bank’s Trichet reiterated that the ECB will remain vigilant on inflation. In comments from the WEF in Davos, Switzerland, he said that the euro is a stable currency and called once again for EU countries to get their fiscal houses in order.

Japanese Yen

The Japanese yen saw little reaction to the trade figures that were released in the overnight session and showed exports surging by 13 per cent on strong shipments to the US and China in December. The yen has responded more to Chinese policy decisions than to local economic data.

Travelex Global Business Payments Malta, freephone: 800 733 22, www.travelex.com/mt/

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