Sterling rallied to a two month high against the dollar on Monday, fuelled by increased speculation over tomorrow’s UK inflation report and the timing of the next rate rise from the Bank of England. If the figures come in at the expected 3.3% or higher, the rally may well extend beyond €1.20 and $1.60.
In a break from the normal trend, which usually tracks euro/dollar, the pound is actually making its own route higher today. A bank holiday in the States combined with investors looking for greater reassurance over the extension of the European Financial Stability Facility (EFSF) helped GBP move higher. It rose as high as $1.5954 and €1.1975 against the dollar and seventeen-nation currency respectively.
Last week’s strong Iberian bond sales were backed by the ECB’s sovereign debt buying scheme which rose to €2.313bn for the week. The implication of this figure is that the unexpected euro strength last week was unfounded and we expect to see the single currency fall this week with sub $1.30 increasingly possible.
When will the euro bottom out? If you have any questions, please feel free to comment below.
Tom Hampton
Analyst – Caxton FX
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