Sterling hit a 5 ½ month low against the euro in early trading this morning on expectations that interest rates in the euro zone would continue to rise at faster rate than in the UK. The European Central Bank last week raised interest rates by 0.25% and the Bank of England kept rates on hold for the 25th consecutive month. Despite the structural issues in the euro zone, the euro is a higher yielding currency than sterling and as such offers more return to investors. In terms of the week ahead, the UK focus will be on tomorrow’s CPI inflation figures. Inflation has been way above the Bank’s 2% target for some time now, so it will remain to be seen whether inflation starts to fall off as the Bank expects. Call in now for a live exchange rate.

In the euro zone, the impact of the Portuguese bailout has so far seen no knock-on to other European countries. In stark contrast to the bailouts of Ireland and Greece, other ‘periphery’ countries have seen improving borrowing costs. Essentially, Portugal is seen as relatively irrelevant on the European scale and so the fate of the economy will not necessarily unduly impact on others in the region. Either way, the euro is likely to remain strong against sterling. Call in now to ensure you are protecting yourself effectively.

In the USA, the US dollar remains weak as a result of interest rate expectations. The Federal Reserve has been very muted with regards to the possibility of scaling back the country’s Quantitative Easing programme and for now, the UK looks likely to increase rates much sooner than the USA, and sterling is seeing the benefits. Inflation data is expected to show an increase, but this is unlikely to see any change in the Fed’s position. Call in now for a live price.

Elsewhere, the same cannot be said for China, who will be releasing a wide array of data on Friday. Consumer inflation is set to rise to 5.4% in March and GDP could see a similar jump. As a result, the Chinese authorities are expected to continue to raise interest rates in the coming months following last week’s 0.25% interest rate hike.

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