Global risk appetite has been pushed higher by the strong performance of equity markets this week. Translating the move into currency markets means that the Japanese yen and Swiss franc, traditional safe haven currencies, have been hit despite the rate increase from China. Sterling may experience heavy bouts of profit taking in front of the MPC meeting, but any losses seen should be contained as investors look forward to next week’s CPI and employment data. German economic data has disappointed this week, but investors were able to shrug off soft figures since they were negatively impacted by poor weather conditions.

Sterling

Sterling declines will be technical in nature and limited in front of the Bank of England MPC. There could be a bout of profit taking in front of the rate announcement that sends sterling lower, but any decline may be limited as markets are already looking forward to next week’s CPI and employment figures. While the Bank of England is widely expected to leave interest rates on hold, there is a small minority that believes the central bank could pop out a surprise increase of 25-basis points, which has lent support to sterling in the past couple of days.

US dollar

The US dollar has strengthened in the overnight session. Outside of the comments made by Federal Reserve members, there was very little to drive currency markets, which are currently moving on risk appetite. A rate raise in China by 25-basis points even failed to have a substantial and lasting impact on currency markets. Equity markets in Asia are lower after a positive finish in the US session, but on balance risk appetite is high, which is reflected by the weaker yen and Swiss franc.

Euro

German industrial output dropped, but the euro’s initial decline was shrugged off after investors viewed the figures as influenced by poor weather conditions. The euro was able to retrace some of its earlier losses after a “risk on” environment was adopted in currency markets.

Japanese yen

The Japanese yen is weaker on the back of improved global sentiment in equity markets. The rally in equity markets fizzled in the Asian session, but investors maintained their ‘risk on’ positions and sent the yen lower.

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

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