The outlook for interest rates is moving currency markets, while geopolitical tensions in Egypt ease. The release of economic data in the EU, UK and US suggests that the European Central Bank will be the first of the three central banks to lift interest rates, followed by the Bank of England and then later the FOMC. As a result, the euro jumped to three-month highs against the dollar, while sterling made 11-week highs. The FOMC is seen as the last to move because of a weak labour market. Strong employment is part of the Fed’s mandate which it must consider when adjusting monetary policy, unlike the BoE or the ECB.

Sterling

Sterling remains near an 11-week high against the US dollar supported by hawkish comments from MPC’s Andrew Sentance and strong manufacturing data. The pound also managed to move higher, despite weak housing data.

US dollar

The US dollar dipped to three-month lows against the euro. Currency markets are being driven by the outlook for interest rate rises and economic data seemed to confirm that tighter monetary policy would come first to the ECB, and then be followed by the BoE and the FOMC. The so-far peaceful protests in Egypt continue to be monitored as a possible market moving event, but as long as they remain peaceful the chances of contagion in the region diminishes. For the moment geopolitical tensions will be set to the side in terms of market moving events and focus will remain on economic data and its influence on the interest rate outlook.

Euro

The euro continues to make gains after a PMI manufacturing survey was revised sharply higher. The input price component rose to record levels supporting the view that the European Central Bank would be the first in the G3 to raise interest rates. The manufacturing survey marked a 17-month period of expansion. Most encouraging was the narrowing of the gap between core and peripheral EU economies.

Japanese yen

The yen once again eased against the major currencies as the fallout from the downgrading of Japan’s debt rating continues to weigh.

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

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