Sterling shrugged off last week’s poor GDP and concerns over the situation in Egypt to hit an 11 week high against the US dollar of $1.6143/£1. Manufacturing purchasing figures surged to the highest level since the survey began in 1992 and led to markets pricing in a 70% chance of an interest rate hike as early as May. There is increasing belief in the idea that the cost of long term inflation would outweigh the benefit of leaving rates on hold. We are starting to see support for a 0.25% rate hike to curb inflation and at the same time maintain growth. However, mortgage approval figures were poor and sterling is still likely to remain very sensitive to negative data, so there is still a large risk that it could drop back down – take advantage while you can.

In the euro zone, the euro continued to strengthen against the US dollar spurred on by strong manufacturing data around the world and the subsequent boost that this gave to appetite for riskier investments. In addition, banks in the euro zone borrowed over €200bn from the European Central Bank fund this week – a move that will keep high liquidity in the region’s banks and has kept investors happy. Released today there is producer price inflation for the region, which could be fairly interesting so call in now for a live exchange rate.

In the USA, it is a relatively quiet day for data against a busy week. Today sees the ADP non-farm employment change – generally seen as the less important of the 2 figures released this week, the other being on Friday. However, last month’s figure showed a 200,000 surge in employment that set up the markets for the Friday figure which ultimately was very disappointing. Call in now for a live exchange rate as we are seeing US dollar weakness driven by interest rate expectations.

Elsewhere, the Japanese yen fell in Asian trade overnight as risk appetite around the world saw investors selling the traditionally ‘safe haven’ currency. Call in now for a live exchange rate.

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