Sterling rose against the US dollar on Monday, boosted by a strong day for the euro as data showed increasing inflation in the region and increased expectations of an interest rate hike in the euro zone. Sterling also saw a boost from a newspaper article in which Martin Weale (the latest Bank of England policy maker to call for a 0.25% interest rate hike) stated that a small interest rate hike soon would cost less than sustained inflation in the long run. The prospect of tightening monetary policy in the euro zone and UK contrasts sharply with the USA, where the Federal Reserve is likely to keep monetary policy loose for some time to come. Out today, there is important house price and manufacturing data so call in now for a live exchange rate.

In the euro zone, inflation came in at 2.4% for the year – up from 2.2% the last month. This follows on from ECB president Jean-Claude Trichet’s comments a few weeks ago warning over higher inflation. Higher interest rates in the region will make euro based investments a more attractive option and as such, saw the euro strengthen against the US dollar. It seemed that both the euro and sterling shrugged off any concerns over the situation in Egypt, which has the potential to cause shocks through the currency markets so ensure you don’t lose out if it does by speaking to a trader today.

In the USA, the US dollar slipped to near a 2 month low against the euro as the USA’s monetary policy outlook contrasted sharply with the euro zone’s inflation and potential interest rate hikes. Markets are now keeping an eye on the key level of $1.3760/ €1 – if the euro goes through this, it could open the door to $1.39/€1 or beyond. Oil broke through $100 per barrel yesterday for the first time since the depths of the credit crisis on concerns over supply and Egypt, but bizarrely we did not see much risk related buying of the US dollar. Out today, there is manufacturing PMI data so call in now for a live exchange rate.

Elsewhere, Canadian GDP came in better than expected posting 0.4% gains against an expectation of 0.2% helped by higher demand from China for commodities in recent months. Normally at this time of year, writers of currency updates can look to the football transfer markets for examples of why planning your currency exchange effectively (and not leaving it until the last minute) can protect you from fluctuations in exchange rates. However, yesterday’s big signings seemed to be a strictly domestic affair… Feel free to call in for a live exchange rate or bemoan FernandoTorres’ move to Chelsea!

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