The British pound rose to two-and-a-half-month highs against the US dollar as investors continue to react to the Federal Reserve’s latest quantitative easing boost, while UK inflation data is expected to limit the Bank of England’s capacity to print more money. The euro also maintained its push higher against the US currency and may move beyond seven-month highs amid signs US President Barack Obama has moved closer to striking a deal with the Republicans that would see the US economy avoid January’s so-called fiscal cliff. Focus should sit squarely on Britain’s consumer price inflation data which could push Cable to new heights.
Sterling
The British pound rose against the US dollar and is trading close to two-and-a-half-month highs in front of inflation numbers that will probably limit the Bank of England’s ability to print fresh money early next year to support the UK economy. British consumer price inflation jumped to five-month highs in October and consensus forecasts have inflation edging only slightly lower on an annual basis from 2.7 per cent to 2.6 per cent in November. Although high inflation levels may drag on the economy, traders should react positively towards the pound if they see inflation keeping central bank stimulus in check, which makes sterling a more reliable and less volatile currency.
US dollar
The US dollar maintained its bearish trend and could face additional pressure following signs that US President Barack Obama is getting closer to reaching an agreement with Congress on averting January’s so-called fiscal cliff. The US dollar’s downside has already been cut open, with the currency dropping to near two-month lows on a trade-weighted basis, after the Federal Reserve doubled up its quantitative easing programme and promised to keep monetary policy extremely loose until unemployment targets are met. Still, investors may be reluctant to step too far from the US currency should budget negotiations in Washington go right down to the wire.
Euro
Investors bid the euro to seven-month peaks against the US dollar and the pace and ease of its climb suggests the single currency could continue to dominate its US rival. Impressive German sentiment data, coupled with improvement in Europe on measures dealing with the debt crisis is making the euro look a little more polished. At the same time, the Federal Reserve has just added another $45 billion to its $40 billion-a-month of asset purchases.