Sterling recovered earlier losses against the euro and US dollar after investors played down earlier comments by rating agency Moody’s. The credit rating agency had earlier stated that the UK’s AAA credit rating would be at risk if the government failed to hit debt reduction targets amidst slowing growth. Figures from the British Retail Consortium also dented sterling, as a report showed that UK shop price inflation slowed in May to the slowest rate this year – decreasing the chances of an interest rate hike at today’s Bank of England meeting. The MPC is expected to keep rates on hold, but with the ECB meeting taking place as well we could see some volatility.

In the euro zone, data showed that German industrial production slipped for the first time in 4 months in April. However, this was generally overlooked by investors who are bracing themselves for today’s ECB interest rate decision. The central bank is expected to maintain interest rates at 1.25%, but signal “strong vigilance” i.e. a 0.25% rate hike next month. Watch out for the press conference afterwards, as this can cause a lot of volatility – call in now for a live exchange rate.

In the USA, the US dollar strengthened against most currencies on Wednesday as investors pulled back from riskier trades. The pull back was following comments from Fed Chairman Ben Bernanke who stated that the US recovery was “frustratingly slow”. This caused concern that a slumping US recovery could impact on global growth. It is a quiet day for data, but call in either way as we could see some movement.

Elsewhere, the commodity-sensitive Australian dollar dropped 0.8% against the US dollar to $1.0624, and the Canadian dollar fell 0.5% against the US currency on the fall off in risk appetite. In addition, Chile's central bank has likely ended its sweeping monetary tightening policy for the year, shifting instead to fewer and smaller rate hikes to further curb inflation without harming a vigorous economic recovery.

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