Sterling rallied to its highest level in six weeks against the euro to hit €1.1641. However, further gains have been capped amid caution ahead of Wednesday’s inflation report from the Bank of England.
Early in the session, the euro’s losses deepened due to elevated concerns over a budget vote in Ireland causing 10 year bond yields to move above 8% yesterday. However, disappointing production and trade balance figures from the UK helped to stem the pounds gains.
Since the data, the pair have traded within a very tight range as investors wait for tomorrow’s report from the BoE, with the price hovering around the 1.16 level. It is highly unlikely to see a move much higher this afternoon and indeed a bout of profit taking could see the price ebb lower as we head into the later session.
Despite the UK’s consistently high inflation figures over the past few months, tomorrow’s report could have a deflationary effect on sterling as Mervyn King is notoriously dovish at these events.
In other news, anybody skiing this season will have a shock landing in Geneva airport as the Swiss franc continues to go from strength to strength. Over the past year, the swissie has seen some large gains and pull backs. The fact remains that the franc holds the most longevity as a safe haven investment going into a tricky Q4. You may want to think before you buy your sandwich at the airport, maybe wait until you reach the economic safety of the notoriously cheap French ski resorts!
Tom Hampton
Analyst – Caxton FX
