Sterling jumped to four-and-a-half month highs against the US dollar. Holding onto these gains could prove difficult, however. The UK Chancellor is expected to deliver the Budget, which is expected to stay the course for strict austerity measures. Just prior to the Budget release, the Bank of England will release the minutes to its last policy meeting held two weeks ago. The euro could also see a degree of profit taking as all eyes turn towards Portugal as austerity measures are expected to be voted on in that country.
Sterling
The UK consumer price index rose 4.4 per cent year on year, to a 28-month high, prompting a rise in sterling as investors speculated that the Bank of England would be forced to raise interest rates. The pound remains near a 14-month high. Further supporting sterling gains was the release of CBI industrial orders, which came in at a three-year high. Investors were able to shrug off public sector net borrowing figures which showed the government borrowing a record amount in February.
US dollar
The US dollar index remains near 15-month lows. With the price of oil remaining high due to the uncertainty over Nato’s mission in Libya and the unrest in the region, dollar gains could be harder to attain. But the dollar’s slide in the past few sessions has more to do with sterling and euro strength than dollar weakness. This sort of dollar move has the potential to correct quickly should the outlook for the UK or euro area change.
Euro
The euro retreated from four-and-a-half-month highs against the US dollar based on rising concerns over Portugal and Ireland. The Portuguese Parliament will take a vote over the government’s latest austerity measures. A failed vote could lead to a collapse in the minority government just one day before leaders are scheduled to gather at an EU summit to agree upon steps to deal with the region’s debt problems.
Japanese yen
More earthquakes struck the tsunami stricken region of Japan jolting nerves which are already on tenterhooks. Toyota announced that it would prolong factory closures. Radiation has been found in Tokyo’s drinking water. The combined impact has shell shocked traders leaving the yen little changed. The yen is being guarded by the Group of Seven industrialised nations who recently intervened directly in currency markets to halt its rise.
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