Sterling hit a 5 ½ month low against the euro in early trading yesterday on expectations that interest rates in the euro zone would continue to rise at faster rate than in the UK. The pound dropped to €1.1287/ £1 early on, but staged a slight recovery on speculation that today’s inflation figures will come in higher and provide some impetus for the Bank of England to raise interest rates following the European Central Bank’s 0.25% rate rise last week. Investors have pushed back expectations of a UK rate hike to August following poor figures and downbeat comments from key policymakers. March’s inflation data is released at 9:30am, so call in now to ensure you take advantage of any movements.

In the euro zone, the euro stayed close to highs against sterling and the US dollar yesterday as markets priced in another interest rate hike in the region in July. However, the euro fell slightly against the US dollar, after hitting a 15 month high of $1.4489/ €1 on Friday following a near government ‘shutdown’ in the USA. This week, the members of the European Commission hope to convene with all of Portugal’s political parties to address the rescue programme prior to the upcoming elections on 5 June. Portugal is the third Eurozone country to receive a multi- billion euro bailout along side Greece and Ireland, but there has been little effect on the euro exchange rate. Released later today there are economic sentiment figures, so call in to avoid any adverse market movements.

In the USA, the US dollar recovered following Friday’s steep losses as Republicans and Democrats agreed a deal to avoid government shut down. They also decided to cut $38bn in spending for the remaining six months of this financial year. Several key members of the Federal Reserve are set to talk later this week and we could see some change to the current loose monetary policy, so call in and speak to a trader now.

Elsewhere, China’s exports and imports showed much stronger figures than expected, not showing any impact from the Japanese earthquake and tsunami. Any better than expected Chinese data generally sees the Australian dollar strengthen as China imports large amounts of commodities from Down Under. As a result, the Australian Dollar hit a new 29 year high of $1.058 against the US dollar.

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