Sterling strengthens as UK inflation holds steady

Today's currency markets show that sterling strengthened against a weak US dollar as UK inflation held steady at 4.5% year-on-year in May.

Currency rates

EURO/GBP - 1.1367
US$/GBP ¨C 1.6340
CHF/GBP ¨C 1.3848
CAN$/GBP - 1.5834
AUS$/GBP ¨C 1.5289
ZAR/GBP ¨C 11.074
JPY/GBP ¨C 131.53
HKD/GBP ¨C 12.719
NZD/GBP ¨C 2.0051
SEK/GBP ¨C 10.395
US$/EURO - 1.4378

Despite holding at a 2.5 year high and staying significantly higher than the Bank of England's 2% target, analysts felt that the data left the UK no nearer to an interest rate hike. The Bank of England having repeatedly warned that inflation could hit 5% before retreating. Sterling hovered around the $1.6400/£1 mark yesterday, having gained nearly 4.5% against the US dollar this year.

In the euro zone, the euro and commodity based currencies rose yesterday, boosted by improved risk appetite after Chinese data eased global growth concerns. The single currency hit a high of $1.4487/€1 against the US dollar ¨C up 0.4% for the day. This came despite the debate still raging over how to bail out Greece again, with Germany and the ECB disagreeing over the level of private involvement with Germany arguing that private creditors should share some of the cost. Greek bond yields touched nearly 17.5% - a record ¨C which gives you some idea of the level of uncertainty surrounding the country.

In the USA, the US dollar gained against the yen and pared losses against most other currencies yesterday after US wholesale price inflation data beat expectations. However, retail sales in May fell for the first time in 11 months, dragged down by a sharp drop in receipts from auto dealerships, though the decline was less than expected.

Elsewhere, the high-yielding Australian dollar gained 0.8% against the US dollar after a report showed Chinese inflation surged to its highest in 34 months. Chinese industrial output for May also beat expectations, coming in at 13.3%. This saw the price of raw materials increase, and as such commodity linked currencies such as the Canadian and Australian dollar all gained as risk appetite surged.

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