In the wake of the BoE's surprise decision to increase interest rates by 25bp, the sterling hit its highest level against the euro since August 2004. Meanwhile, much of the dollar's gains against the euro were eroded as traders sold the currency.

GBP

The BoE rate hike has evidently enhanced sentiment for the sterling, placing borrowing costs on an equal platform with the US.

USD

The dollar initially rallied against the euro and hit a one-and-a-half-month high. Following this, the currency sold off in anticipation of the Martin Luther King US holiday. Data releases this week could provide clues as to how robust the US economy was in the final months of 2006 and could provide the dollar with further support against the sterling and euro.

EUR

The Italian Prime Minister urged the ECB to cease raising interest rates, as he believes that pushing interest rates too high could stifle Italy's economic recovery.

JPY

The yen rose from a 13-month low against the dollar as expectations gather that the Bank of Japan will lift their interest rates from 0.25 per cent against the government's wishes.

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