Finance Markets

January 17, 2007

Sterling strengthens on likelihood of more interest rate hikes

Permalink: Sterling strengthens on likelihood of more interest rate hikes

Filed under: Forex, USD, GBP, Euro, Economy, Yen

With analysts saying that more interest rate hikes are likely in store from the Bank of England, sterling strengthened on Wednesday. Many look for another rate increase as early as February or March. Analysts base their expectations on new data that show unemployment in the UK dropped at its fastest rate in nearly two years in November. In addition, the retail price index is at its highest level in a decade and a half. Those indicators more than balanced the news that average earnings in the UK in November were slightly lower than had been anticipated.

Sterling added 0.2 percent to ¥237.50 versus the Japanese yen, while it gained 0.3 percent in relation to the euro, to £0.6570. The UK currency was 0.3 percent higher against the US dollar, to $1.9700.

The yen, meanwhile, was also weaker against both the euro and the US dollar as any expectation that the Bank of Japan would raise interest rates on Thursday faded. News reports indicated that the Bank’s governor has not been able to gather the votes necessary to raise rates against the wishes of the government, which has made it know that it did not favor the rate increase.

The Japanese currency managed to regain ground versus the greenback to finish even at ¥120.60, but was down to ¥120.87 at one point in the session. The yen was 0.2 percent lower against the euro, to ¥156.05.

The euro held steady at $1.2930 versus the US dollar after new data showed that capital inflows into the US were up in November and that producer price inflation in the US was higher than had been expected.

Elsewhere, the New Zealand dollar fell 0.6 percent in relation to the US dollar, to $0.6912, while the Chinese renminbi added 0.4 percent to Rmb7.7740 versus the greenback. It was the Chinese currency’s largest one-day gain since October.

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