Sterling rises vs. euro on inflation figure

Sterling strengthened against the euro by 0.35 cents (0.30%) yesterday to close the day at 1.1858.

• In early trading yesterday sterling rose against the single currency, after data released in the UK showed inflation fell less than forecast in May. Yesterday’s UK CPI reading of 2.2% was slightly down on the 2.3% registered in April, but still comfortably above the Bank of England’s target of 2% inflation. Deflation now looks increasingly unlikely.
  
• However, sterling’s gains were capped to some extent following the release of better-than-expected German ZEW Economic Sentiment survey. This month’s reading of 44.8 was well ahead of the 35.0 predicted, bolstering investor hopes of eurozone recovery.
  
• In trading so far today the pound has pared some of the gains it made yesterday, as investors look ahead to important UK employment data out later today.
  
• There are no major announcements due in the eurozone today, whilst in the UK Claimant Count Change data and MPC Minutes are out at 09.30 BST.

US Dollar falls on Medvedev comments

Sterling rose by 0.91 cents (0.56%) against the US dollar yesterday, finishing the day at $1.6410.

• In early trading yesterday sterling strengthened against the dollar, after Russian President Dmitry Medvedev hinted that Moscow may be looking to reduce the share of US assets from its reserve currency portfolio.
  
• The pound’s gains were further extended following the release of UK inflation figures mid-morning. May’s reading of 2.2% was slightly down on April’s reading of 2.3% but not as low as the 1.9% analysts had been forecasting.
  
• In trading so far today the pound has continued its rise against the greenback as the leaders of Brazil, Russia, India and China continued their first summit, pushing the sustainability of the dollar’s reserve status to the top of the currency market’s agenda once again.
  
• In the UK, Claimant Count Change data and MPC Minutes are due at 09.30 BST, whilst in the US Core CPI (MoM) is out at 13.30 BST. US Fed Chairman Ben Bernanke is also due to speak at 17.00 BST.

Euro finishes up against US Dollar

The euro strengthened by 0.32 cents (0.23%) against the US dollar yesterday to close the day at $1.3834.

• In early trading yesterday, the euro strengthened against the dollar after a surprising rise in the German ZEW Economic Sentiment bolstered hopes for the eurozone’s chances of economic recovery. This month’s reading of 44.8 was well ahead of the 35.0 expected.
  
• The downward pressure on the dollar was further increased yesterday after the news that Russia may be looking to diversify its reserve currency portfolio away from the greenback prompted traders to sell the US currency.
  
• In trading so far today the euro has resumed its rise against the dollar, as the first summit of the fast-growing “BRIC” nations continues. The meeting has once again thrust the dollar’s status as the world’s premier reserve currency onto the agenda.
  
• There are no major announcements due in the eurozone today, whilst in the US Core CPI (MoM) is out at 13.30 BST and Fed Chairman Ben Bernanke is to speak at 17.00 BST.

Aussie falls to 7-week low against sterling

The Australian dollar fell to near 7 week lows against sterling yesterday, as the aussie was hit by further falls in commodity prices.

• Australia is one of the world's leading commodity exporters so falls in prices will generally put pressure on the aussie.
  
• The local currency also gained little support from the RBA's minutes, which stated there was no pressing need for the central bank to cut rates further.
  
• However, analysts remain concerned that the ongoing pressure on funding costs would put upward pressure on mortgage rates. This was verified by the country’s leading mortgage lender raising its variable mortgage rate. This has increased speculation that the central bank may have to cut rates further.
  
• Sterling also received a boost yesterday from firmer than expected inflation data, which showed CPI prices fall to 2.2% in May. Analysts had expected a bigger fall and it helped increase speculation that the chances of deflation were now quite low.

Kiwi holds vs. aussie, down against sterling

The New Zealand dollar had a mixed day yesterday, holding steady against the aussie but losing ground to a stronger pound.

• Investors continue to take a guarded view over the potential economic recovery, with a mixture of weak and upbeat economic news clouding the issue.
  
• The kiwi weakened considerably against sterling yesterday, with the pound being supported by the view that the UK economy may be slowly recovering.