Investors will face a couple of hurdles in the UK and eurozone session as the UKCPI inflation figures will be released. Market anticipation has allowed sterling to rise to two-month highs against the US dollar in the run-up and a soft or weak inflation figure could see investors taking profit on sterling’s recent ascent, leading the pound to tumble. The figure will need to come in at or above expectations to keep investors interested in maintaining their long sterling positions. A high inflation number will allow further speculation that the Bank of England will need to look to raise interest rates in the short term to help curb inflation which is already nearing one and a half per cent above target, increasing sterling’s yield appeal. In the eurozone, finance ministers will meet and continue to debate the European Financial Stability Facility and all of its intricacies. If investors become less confident in the facility because of inside bickering, then the euro’s gains could be tested.

Sterling

Sterling rose to two-month highs against the US dollar, with investors buying sterling in anticipation of the CPI release. A build-up in pipeline inflationary pressures was seen last Friday when PPI was released. Speculation is rife that the Bank of England could be about to lose its credibility as inflation expectations become unanchored.

US dollar

The US dollar traded higher, erasing some of last week’s losses. Trade was fairly lacklustre considering US markets were closed for a public holiday.

Euro

The euro group meeting failed to come up with concrete decisions over the use, size and availability of the European Financial Stability Facility. The finance ministers will meet again in an EcoFin meeting, which will continue to try to hammer out some of the issues surrounding the facility. What is important is that markets remain confident in the facility. The more debate and discontent investors see, the more likely they will be to lose confidence, which would negatively impact the euro.

Japanese yen

The Japanese yen continued to trade in relatively quiet trading ranges in the overnight session. Revised industrial output figures failed to offer market participants any inspiration. Output figures remained unchanged at one per cent.

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

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