Pound vs Euro & US Dollar predictions March 2011

In this week’s Report:

• Sterling vs Euro tumbles to 3 week low
• Interest Rate speculation in UK/EU driving exchange rates
• Effect of unrest in Libya on Oil Prices and GBP/USD
• Round up of the week’s data that may affect rates

(For currencies other then EUR and USD, contact us for a consultation)

Sterling vs. Euro; 3 week low

Sterling fell on Friday as data showing a deeper fourth-quarter UK economic contraction reduced expectations of an interest rate hike by mid-year and raised concerns about how the economy can deal with rising inflation. Revised data showed the UK economy shrank 0.6 percent in the last three months of 2010, more than the preliminary reading of a 0.4 percent contraction. This data highlights the dilemma faced by the BoE in balancing rising inflation, which is double the central bank's 2 percent target.

Due to this, Sterling slumped to a three-week low against the Euro, extending its downward movement versus the single currency this week. Also helping to boost the single currency was hawkish rhetoric on Euro zone interest rates, as European Central Bank policymaker Axel Weber kept the speculators on their toes when he stated that Euro zone rates could only rise from here. The Euro looked to end the week nearly 2 percent higher on the week, its best performance since late October.

The negative risks to the Euro’s health have been repressed for some time now. The real financial uncertainties that remain behind the Euro-region have been offered a temporary stay of execution when policy officials offered their open-ended promises to further bolster the bailout effort going forward. Yet, in the weeks since, conditions have continued to deteriorate. And, reminding of the trouble ahead, German policymakers discussed proposals aimed at insuring a hard-line approach to further bailout accommodations at EU meetings. It just so happens, that the Parliament plans to vote on these proposals on March 17 – one week before the EU summit.

The volatility last week highlights the risk that private individuals are exposed to when international financial events entirely out of their control move the markets. With this inherit risk in the background and your life savings in the foreground it is well worth while seeking the guidance of an experienced currency trader at Foremost Currency Group to assist you through your currency purchase. Contact us Today.

Sterling vs. US Dollar; drops from near 1 yr high

Sterling finished the week in dramatic style against the US Dollar after slipping over a Cent following disappointing GDP figures on Friday. In what was a distinctly flat week for Cable, Sterling began well trading at over 3 month highs at 1.62 plus on the Mid Market.

The early part of the week was distinctly slim on market data releases and was driven more on speculation as to the minutes of the Bank of England’s meeting at the beginning of the month however, this had little impact on the exchange rates.

When the minutes were released sterling rose against the dollar after it showed a hawkish tone, with three members of the Monetary Policy Committee voting for a rise in interest rates. Bank of England Chief Economist Spencer Dale joined Andrew Sentance and Martin Weale in voting for higher rates. More importantly the minutes showed that some of those members who voted against a rise would consider changing their decision if the economy showed signs of picking up after the unexpected drop at the end of 2010.

Things started to unravel against Sterling on Thursday as problems in Libya escalated and concerns over the supply of oil were heavily voiced. As the price of oil spiked by over 8 cents at the high of the day, investors were driven to more ‘safe-haven’ status currencies such as the Dollar putting pressure on the Pound.

On Friday Sterling continued to slide against the Greenback and once again appeared to be the weaker relative after disappointing GDP figures were released showing a negative growth of 0.6%. Sterling supporters had been hoping for a more positive reading as evidence that lasts month’s disastrous reading had been a one off and a result of extraordinary weather conditions affecting the economy.

This was not the case and in fact this month’s reading showed that even though the poor weather did have an impact on growth the figure would still have been negative which prompts renewed concern about the stability of the economy and whether the UK may be headed towards another technical recession.

Next week is another important week in the markets with inflation data in the UK and across the Atlantic Non-farm payrolls are released, these crucial employment figures are generally seen as litmus test for the health of the US economy.

Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. The implication of these economic releases will differ depending on the currency you need to buy or sell. For a free consultation on how this could affect the cost of your currency requirement, open an account with us today. This is free to do, doesn’t obligate you in any way, and simply gives you access to our market knowledge and commercial exchange rates.

Monday
The week kicks of with data from the Eurozone in the shape of Consumer Price Index measure. These indicate inflation and therefore can impact interest rate policy. A high reading may cause GBP/EUR to fall. We have GDP figures from Canada at lunchtime, followed by House Prices and Inflation data from the USA.

Tuesday
The new month starts today and the first data of note is an Interest Rate decision from Australia and Canada, although we expect no change from either. From the UK we see the latest House prices from Nationwide, indicating how this sector is performing. We also have UK Mortgage approvals today. From the Eurozone watch for German unemployment and inflation data that may cause GBP/EUR volatility.

Wednesday
UK data today is in the form of Halifax house prices which follows yesterdays report from the Nationwide. The EU also has various inflationary measures being released today. Further afield Australia has GDP figures showing how the economy is performing.

Thursday
Today is very busy for EU data. We have: Gross Domestic Product; Retail Sales; Inflation figures and an Interest Rate decision. There’s a lot that could affect GBP/EUR rates so contact us if this is the currency you need to buy or sell. From the USA there are some unemployment and jobless figures at lunchtime.

Friday
We end the week with US unemployment and Non-Farm payrolls. This often causes significant volatility for Sterling vs. US Dollar rates as the actual figures are often very different to those forecasted.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

Sterling falls AGAIN vs Euro

25th February 2011
Good morning. Well, the Pound has had a truly rubbish week, falling every single day against the Euro. Yesterday was no different, as a spike in oil prices drove investors into safer currencies and sparked concerns about the impact on an already fragile UK economy. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1668
• GBP/USD 1.6114
• GBP/AUD 1.5938
• GBP/NZD 2.1522
• GBP/CAD 1.5825
• GBP/CHF 1.4907
• GBP/ZAR 11.300
• GBP/JPY 131.98
• GBP/NOK 9.044
• EUR/USD 1.3810

Sterling falls yet again vs the Euro

With all the talk of interest rate hikes for the UK this year, until this week Sterling had rallied well against the Eur. Sterling remained supported by expectations that the Bank of England will raise interest rates in the coming months. However analysts said much of that was already priced in to the pound, leaving limited room for further gains.

Meanwhile, the euro has gained sharply after European Central Bank policymaker Axel Weber boosted the prospect of rising borrowing costs in the euro zone, saying the only way for interest rates to go was up. The stronger Euro became more expensive to purchase and this helped push rates lower yesterday.

"It is a broad risk aversion trade that is seeing a pullback in sterling," said Gavin Friend, currency analyst at nabCapital.

Oil Prices hit 30 month high

With Oil prices hitting a 30 month high yesterday, this has had an impact on various currencies. Risker assets such as Sterling have been hit, whereas safe haven currencies like the JPY, CHF have strengthened. Countries like Canada that export a lot of oil have seen their currency increase in value, while the US which is a large importer of oil has seen it's currency weaken.

Today's Data

We have GDP figures for the UK today which is likely to cause further volatility for Sterling. if the figures are higher than expected then we may see a slight recovery for Sterling. we also have service sector data from the UK, and the US in the afternoon releases GDP figures, so expect GBP/USD volatility today.

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Sterling falls again, despite BoE minutes

24th February 2011
Good morning. Sterling rose yesterday after the BoE minutes showed renewed appetite for an interest rate hike. The gains were short lived though, as focus returns to the poor performance of the UK economy. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1769
• GBP/USD 1.6160
• GBP/AUD 1.6117
• GBP/NZD 2.1690
• GBP/CAD 1.5935
• GBP/CHF 1.4998
• GBP/ZAR 11.476
• GBP/JPY 132.32
• GBP/HUF 322.86
• GBP/NOK 9.1076
• EUR/USD 1.3723

Bank of England minutes

Another Bank of England policymaker has voted for an interest rate rise, suggesting rates could be raised sooner rather than later. Spencer Dale has joined Andrew Sentance and Martin Weale in backing a rise, minutes yesterday showed. The remaining six MPC members voted to keep rates at historic 0.5% lows.

The minutes also suggested that some of those opposed to a rate hike this month would consider a rise if the economy shows signs of picking up after unexpectedly contracting at the end of 2010. The pound has rallied all year so far, as rate rise expectations have gathered steam, but analysts said investors were becoming more hesitant to push sterling higher on concerns monetary tightening could threaten the economy's fragile recovery.

"The simple takeaway of the minutes would be that there's been a move to a more hawkish view on the board given inflation concerns," said Henrik Gullberg, director of currency strategy at Deutsche Bank.

He added: "Higher rates in the UK, which would be primarily driven not so much by strong demand and activity but by inflationary fears, could be counterproductive in terms of the strength and sustainability of the recovery.

"This is not necessarily positive for the currency. That's why we haven't seen a stronger reaction from sterling."

So, while there was an initial lift in the value of Sterling immediately after the minutes, the Pound quickly dropped back away as the state of the UK recovery took centre stage again.

Today's Data

Today from the EU we see economic and industrial confidence measures. These give a good idea how consumers feel about the economy and so could affect GBP/EUR rates. From the USA there are some jobless and home sales figures in the afternoon.

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Sterling vs Euro down ahead of BoE minutes

23rd February 2011
Good morning. Why did Sterling fall agains the Euro? Yesterday Sterling vs Euro was well over €1.19, however yet again the high was short lived. Sterling fell due to risk aversion due to tensions in the Middle East, and also comments by an ECB policy member strengthened the Euro making it more expensive to purchase. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1816
• GBP/USD 1.6218
• GBP/AUD 1.6153
• GBP/NZD 2.1715
• GBP/CAD 1.6003
• GBP/ZAR 11.528
• GBP/JPY 134.00
• GBP/HUF 320.68
• GBP/NOK 9.1484
• EUR/USD 1.3719

Sterling falls on Middle East tensions

Worries stemming from growing tension in North Africa and the Middle East prompted investors pare back positions in riskier assets, including Sterling. Due to the problems causing rising oil prices, investors are moving to safe haven currencies such as the US Dollar.

ECB comments strengthen the Euro

The pound was also lagging the euro which received a boost from hawkish comments from European Central Bank policymaker Yves Mersch. Mersch was quoted as saying he would not be surprised if the bank sharpened its language on inflation. This signals that interest rates may go up in the EU before the UK, and as a result the Euro is gaining strength.

Bank of England minutes today; volatility expected

Attention this morning is on the minutes to the recent Bank of England decision to hold interest rates. The minutes show what was discussed, and how many of the members voted to raise rates. In the last meeting 2 of the 9 members voted for a rate hike.

If a third member joins them it will show there is growing speculation the Bank of England will raise rates in the coming months. This is what has led to a sharp spike in Sterling in the last week, but analysts said this could leave the currency vulnerable to position adjustment.

If there are indeed 3 members now pushing for higher rates, we expect Sterling to make some gains. As this is expected though it may already be priced into the market, and so gains if any may be limited. Take into account the rising Euro due to yesterdays comments, and it's hard to see if GBP/EUR will go that much higher than it already is.

Today's Data

As mentioned above, the BoE minutes at 09:30am is the most important release today. We also have EU Industrial order figures which are released this morning. This is a barometer of the manufacturing sector and can affect the value of the Euro. From the US there are home sales figures released later in the afternoon.

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Pound vs US Dollar Forecast

22nd February 2011

Good morning. Sterling fell against the US Dollar yesterday, but is back above €1.19 against the Euro due to the underlying pressures to raise interest rates in the UK. As we focused on the Pound vs Euro rate yesterday, today we'll have a detailed look at GBP/USD after the usual snapshot of rates as at 08:30am:

• GBP/EUR 1.1913
• GBP/USD 1.6140
• GBP/AUD 1.6143
• GBP/NZD 2.1558
• GBP/CAD 1.5917
• GBP/CHF 1.5263
• GBP/ZAR 11.619
• GBP/JPY 134.06
• GBP/HUF 324.33
• GBP/NOK 9.2673
• EUR/USD 1.3546

Sterling vs. US Dollar;







The GBP/USD exchange rates reached close to a one year high at $1.6241 last week as the Dollar weakened against a basket of the most commonly traded currencies. Cable had been able to hold above $1.61 supported by upbeat economic data from the UK as detailed above and a contrasting mix of domestic economic data from the US.





























This unfortunately was not the sum of the US Dollars problems as external factors compounded the negative effects on the Dollar. News of Iranian warships en route to Syria via the Suez Canal rekindled geopolitical tensions in the Middle East causing demand for the traditional “safe-haven” currency the Swiss franc at the expense of the US Dollar; this in turn sparked a spike in oil prices and due to the inverse relationship, the greenback falls when oil, which is priced in dollars, rises.



Where next for the US Dollar?





Although the past week was not a favorable one for the US dollar from a fundamental economic perspective, the developments could lay the groundwork for a rebound. There are a few elements that could reasonably be expected to provide enough support for the greenback, the threat of a sharp drop in risk appetite given the continued uncertainties in the global economy, the inevitable switch to speculation of impending interest rate hikes as we’re currently witnessing in the UK and an improvement in the US economic activity.





Two of these interests have slowly started to firm up for the greenback recently but progress has been limited. We’re so close to a one year high for GBP/USD and as we said in yesterdays report, Sterling has tended to fall away quite quickly following such rises, now would seem like an ideal opportunity to contact FCG to gain a professional opinion on the options available to you whether buying or selling the Dollar.



Today's Data



A quiet day for the UK with only Public Sector borrowing at 09:30am. From the EU we see German consumer confidence. Canada releases retail sales figures in the afternoon followed by US consumer confidence at 15:00pm. Markets await tomorrows BoE minutes which could provide direction for Sterling.



If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

Pound vs Euro & Pound vs USD weekly forecast

In this week’s Report:

• Pound vs. Euro; gains 3% in 3 weeks
• Interest Rate and the effect on exchange rates
• Sterling vs. US Dollar; close to the best for over a year
• Round up of the week’s data that may affect rates

(For currencies other then EUR and USD, contact us for a consultation)

Sterling vs. Euro;
Last week was quite volatile as contrasting economic figures drove Sterling up and down against the Euro. Due to high inflation and robust retail sales, Sterling ended the week not far from a 3 month high against the Euro. As the chart illustrates, rates have increased by 3% since the end of last month:











To summarise the events of the past week, initially Sterling was buoyed by figures on Tuesday showing that inflation is yet again well above the Bank of England’s (BoE) target of 2%. This caused renewed speculation interest rates may be on the rise soon, and thus strengthened the pound. The gains were short lived however, as high unemployment figures pushed Sterling back down again mid week.

The upwards trend returned however later in the week, with robust Retail Sales on Friday and a BoE member calling for interest rates to rise sooner rather than later.

Interest Rates

Interest Rates in the UK have been on the agenda for several weeks, as rising prices are causing inflation to spiral out of control. So how do interest rates affect the exchange rate? Well, as a rule of thumb low interest rates mean little return for investors and results in a weak currency.

In normal times, banks would raise interest rates to combat inflation as a result from the economy growing faster than its sustainable rate. A rate hike is thus a sign of economic strength. Usually rumour and speculation of an interest rate hike increases the value of Sterling and exchange rates rise, and indeed this is what we have seen in recent months.

The Bank of England is well aware of the economic risks that inflation poses to UK economic growth. On the one hand Mervyn King has as usual been talking down the value of Sterling, while in contrast another member of the MPC has been calling for a rate hike for some time. So, the lack of consensus at the BoE over whether they want a strong pound or weak pound is doing little to stabilise expectations of when rates will rise.

So when are rates likely to go up?

Most analysts expect the soonest rates will rise will be in the summer. When interest rates do start to go up, it’s likely this will be the catalyst for a decent recovery in the value of the Pound. In the short to medium term however, due to the fragility of the recovery meaning interest rates need to stay low, exchange rates could well get worse before they get better.

We’re close to a 3 month high for GBP/EUR, and the last 4 times this happened the rate fell back again very quickly. For this reason if you need to purchase Euros and are worried about losing out, it may be wise to consider fixing a rate sooner rather than later to take advantage of the recent 3% gain.

To put this into context €150,000.00 is over £4000 cheaper today than several weeks ago. Even if you don’t need your currency straight away, you can fix the current rate with a ‘Forward Contract’ where only a 10% deposit is payable initially, protecting you against adverse rate movements for up to 2 years.

To find our more about Forward contracts and our commercial exchange rates, click below to register an account with for free, without obligation.




Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. The implication of these economic releases will differ depending on the currency you need to buy or sell. For a free consultation on how this could affect the cost of your currency requirement, open an account with us today. This is free to do, doesn’t obligate you in any way, and simply gives you access to our market knowledge and commercial exchange rates.

Monday
Its president’s day in the USA and so no economic data from across the pond. From the UK we have house price information from Rightmove. German and EU inflation figures are also released this morning. There have been recent talk of the EU putting interest rates up soon, so high inflation figures may well push GBP/EUR rates down.

Tuesday
A quiet day for the UK with only Public Sector borrowing at 09:30am. From the EU we see German consumer confidence. Canada releases retail sales figures in the afternoon followed by US consumer confidence at 15:00pm.

Wednesday
EU Industrial order figures are released this morning. This is a barometer of the manufacturing sector and can affect the value of the Euro. From the US there are home sales figures released later in the afternoon.

Thursday
Today from the EU we see economic and industrial confidence measures. These give a good idea how consumers feel about the economy and so could affect GBP/EUR rates. From the USA there are some jobless and home sales figures in the afternoon.

Friday
We end the week with service sector data from the UK, and the US in the afternoon releases GDP figures, so expect GBP/USD volatility today.

Sterling up vs Euro on BoE comments

18th January 2011
Good morning. The pound bounced back yesterday and this morning after falls on Wednesday. It was helped by some robust economic data and also Andrew Sentance, one of the BoE members who said a rising pound may help inflation. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1925
• GBP/USD 1.6201
• GBP/AUD 1.5994
• GBP/NZD 2.1236
• GBP/CAD 1.5931
• GBP/CHF 1.5415
• GBP/ZAR 11.638
• GBP/JPY 134.99
• GBP/NOK 9.2558
• GBP/HUF 321.14
• EUR/USD 1.3578

Pound gains on Andrew Sentance comments

Bank of England monetary policy committee member Andrew Sentance yesterday put further pressure on other MPC members on tackling high UK inflation in a speech. He questioned claims that unemployment would slow down price rises, instead blaming strong global demand.

He has been voting for an interest rate rise since June last year, and last month he was joined by a second member of the MPC. It's this shift towards possible higher interest rates that has been pushing the pound up over the last week or so.

He also said in his speech that the exchange rate may have overreacted to the recession, adding to inflationary pressures, and favoured a modest appreciation in sterling.

The large fall in the value of of Sterling during '07 to '09 was "the largest depreciation we have experienced in a relatively short period over the past two centuries, with the exception of the departure from the Gold Standard in the 1930s," he said, referring to the huge drop we saw in rates at the beginning of 2009.

A weaker pound makes the UK economy more price competitive internationally, but it also feeds into inflation via higher import prices. For those needing to buy foreign currency to purchase property abroad or for business requirements, a weak pound has significantly increased the cost of purchasing other currencies.

The Bank of England does not typically express an opinion about the value of the pound, preferring not to influence the currency markets. But Mr Sentance said that the currency should be "one of the key areas of focus as we seek to steer ourselves out of the current phase of high inflation."

So, with some members wanting rates to rise, with others preferring to keep them on hold, the net result will be continued uncertainty and volatility in the markets.

Currently though against the Euro the pound is getting back close to it's highs of recent months. The last 4 times this happened, rates quickly fell back away on poor economic data. If you need to buy currency, then contact us today to discuss our commercial exchange rates, and contract types to help protect against adverse rate movements.

Sterling falls on BoE report

17th February 2011
Good morning. An interesting few days in the markets, with Sterling surging following the high inflation figures earlier in the week, only to drop back away due to high UK unemployment. We'll look at this in detail after the usual snapshot of rates as at 08:30am:

• GBP/EUR 1.1871
• GBP/USD 1.6094
• GBP/AUD 1.6012
• GBP/NZD 2.1284
• GBP/CAD 1.5828
• GBP/CHF 1.5396
• GBP/ZAR 11.598
• GBP/JPY 134.37
• GBP/HUF 319.64
• EUR/USD 1.3556

Sterling falls after BoE report & unemployment

Sterling fell yesterday against most currencies including the Euro and US Dollar after Bank of England Governor Mervyn King warned investors against jumping to conclusions about when interest rates may go up.

Although the BoE's quarterly Inflation Report did seem to indicate inflation would remain high, King's comments appeared more dovish to a market that had been pricing in a big chance of a rate hike.

On Tuesday the pound had surged upwards against other currencies when a big lift in inflation and a reference to an interest rate rise in King's letter to finance minister George Osborne supported the view that tightening may be imminent.

Where next for the Pound?

Sterling has rallied since the start of the year on the growing view that interest rates will rise, but some analysts say the BoE will first monitor the country's fragile economic recovery while gauging the impact of drastic government austerity measures.

Signs of a struggling economy were evident yesterday as a surprising rise in the UK jobless numbers underlined weakness in the country's labour market, while a measure of consumer confidence also fell.

The BoE's King said these poor figures highlight the fact the economy is still fragile and many analysts may be getting ahead of itself in speculating rates will rise in coming months.

"Some people are running ahead of themselves and saying that we are pre-announcing or laying the ground for a rate rise," King told reporters, adding that the central bank never endorses market rate expectations.

Rates to buy Euros are still close to the best for months, and in recent times when we have reached this level exchange rates have quickly fallen back away. Due to this if you need to buy Euros and are worries about rates moving against you, get in touch today to discuss our service by clicking the banner below.

Sterling strong on interest rate expectations

15th February 2011
Good morning. Sterling held fairly steady yesterday ahead of UK inflation data and the Bank of England's quarterly report. Rates vs the Euro hovered around €1.19 all day, with expectations for an interest rate rise in the near term providing strong support. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1894
• GBP/USD 1.6051
• GBP/AUD 1.6007
• GBP/NZD 2.1225
• GBP/CAD 1.5833
• GBP/CHF 1.5581
• GBP/ZAR 11.702
• GBP/JPY 134.00
• GBP/NOK 9.3656
• GBP/HUF 1.5580
• EUR/USD 1.3494

Sterling strong on interest rate expectations

In the Eurozone investors have reigned in expectations of an interest rate rise in the Eurozone, and this is keeping the Euro weak and cheap to buy. In contrast it's expected the Bank of England will raise rates by mid year, and it's this expectation that's keeping Sterling strong at the moment.

Inflation data today is expected to show a figure of 4% which is well above the BoE's target of 2%. If we keep getting high inflation figures then calls will continue for the BoE to raise rates sooner rather than later.

Until now the BoE has been confident price pressures would be temporary, and a shift in that view would add to expectations for a rate hike.

Analysts warn Sterling may weaken in the near term

There are concerns about weakness elsewhere in the UK economy and further data this week, including jobs data tomorrow and retail sales figures on Friday will also be closely watched by the currency markets.

The economy contracted in the fourth quarter of 2010 and concerns are growing that job losses will mount, hurting consumer spending at a time when the government is cutting spending.

"This combination of higher inflation and lower growth will be a medium-term negative for sterling. Hence, we expect any sterling gains to prove unsustainable

Today's Data

A very busy day for data. We have lots of UK data; Gross Domestic Product, Consumer Price Index, House price info and Retail Sales. Lots here that could affect the value of Sterling against other currencies.

For the EU we also have GDP along with Trade balance figures and economic sentiment. Expect GBP/EUR volatility today. From the US we have Retail Sales and inflation measures.

If you are looking for the best exchange rates, click the link below to send us an enquiry, and have a free consultation on what's happening in the currency markets.

Pound vs Euro & US Dollar Forecast Outlook

14th February 2011

In this week’s Report:

• Pound vs. Euro; moving on interest rates
• Sterling vs. Dollar forecast
• The impact of interest rates on exchange rates
• Round up of the week’s data that may affect

(For currencies other then EUR and USD, contact us for a consultation)

Sterling vs. Euro;

The Pound endured widespread losses against the vast majority of the 16 most actively traded currencies in the FX Markets on Friday morning last week, and the UK currency also retraced back towards 1.18 against the Euro, after encountering strong resistance in the region of 1.1850

.

All in all a bit of an anticlimax for Sterling this past week as highly anticipated data releases in the form of an interest rate decision from the Bank of England on Thursday, Retail sales and House prices on Tuesday and PPI input on Friday all failed to have a heavy impact on the strength of the pound, despite positive results in all areas other than the interest rate decision, which remains at 0.5%.

UK producer prices rose twice as much as initial forecasts in January, which will only serve to add to concerns that the Bank of England is losing the battle to keep a lid on rising prices. PPI input rose 1% from December, the most since April, and exceeded the 0.5% forecast. The Pound also came under heavy selling pressure, after former BoE policy maker Kate Barker said that the MPC may be wary of raising interest rates because of the subsequent impact on the Pound and the threat to the economic recovery.

The UK currency has gained against all but one of the 16 most actively traded currencies this year, as markets priced in a rate hike by June, due to persistent inflation concerns. The comments, combined with concern that that BoE is losing control of inflation, has weakened the Pound and the UK currency will continue to be susceptible to any suggestion that the BoE will refrain from raising rates this year.

Economists are sceptical as to whether the Central Bank will raise rates before the first quarter of 2012, while the National Institute of Social and Economic Research anticipate three 25 basis point increases this year. If you would like a live quote, or to discuss the use of stop and limit orders in managing your currency risk, please call The Foremost Currency Group.

Sterling vs. US Dollar;

A very quiet week on Sterling/Dollar ended with a sudden drop of over 1 cent as we saw the rate move back below the psychological 1.60 level after it had hit a 4 month high just a week earlier.

The rate had traded in a very tight range at the start of the week between 1.6070 & 1.6120 but data towards the end of the week caused some optimism that we could see the Pound recover more ground moving forwards, even though the Bank of England held interest rates, as UK GDP estimate was revised up to -0.1% from -0.5%, and PPI figures also read better than expected.

This optimism was washed away by Friday lunchtime as Sterling slipped away against most major currencies as traders looked for some sort of clarity on the Bank of England’s current position regarding interest rates.

We will not see the minutes from Thursday’s meeting until later this month; it looks as though the markets still lack clarity on how close the BoE really is to increasing rates as inflation pressures continue to mount (further reinforced by Friday’s PPI data).

“This ongoing uncertainty helped to put the Pound on the back foot on Friday”, said John Hydeskov, currency strategist at Danske Bank, adding that the market was also keenly awaiting the BoE’s inflation report next week to gauge its outlook on prices.

“We’re not clearer on the central bank’s stance than we were before the decision. We still don’t know whether the MPC has more hawks”, he said.

It also looks like the Pound may have struggled due to renewed risk appetite after President Hosni Mubarak’s refusal to step down, after it looked highly likely on Thursday that he would, as investors flocked back to the Dollar and helped the Greenback rise 0.5% against a basket of major currencies.

Our view on Cable (GBP-USD) appears to be the same as most analysts as we think that while we should see it return to the 1.70+ levels not seen since 2008 at some point this year, uncertainty over economic growth on both sides of the Atlantic, and how the Bank of England will handle the current stagflation in the UK, mean we could easily see it back at 1.50 before this happens. As ever, should you have any upcoming USD requirements, make sure you get in touch with your FX Trader at Foremost Currency Group at your earliest convenience.

Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. The implication of these economic releases will differ depending on the currency you need to buy or sell. With lot’s of data from the UK and Eurozone on Tuesday and Wednesday, we expect a volatile week for Sterling exchange rates. For a free consultation on how this could affect the cost of your currency requirement, open an account with us today. This is free to do, doesn’t obligate you in any way, and simply gives you access to our market knowledge and commercial exchange rates.

Monday
There is no UK data of note today. The main data is Industrial Production from the EU. This is an inflationary measure and with all the speculation of interest rates in the UK and EU at the moment, high figures may push GBP/EUR lower. There is also some housing data from the USA.
Tuesday
A very busy day for data. We have lots of UK data; Gross Domestic Product, Consumer Price Index, House price info and Retail Sales. Lots here that could affect the value of Sterling against other currencies. For the EU we also have GDP along with Trade balance figures and economic sentiment. Expect GBP/EUR volatility today. From the US we have Retail Sales and inflation measures.

Wednesday
Consumer Confidence figures from the UK are released today, in addition to a raft of unemployment and jobless figures. Staying in the UK we also have a BoE Inflation report and a speech by the banks governor. Expect Sterling weakness if he is dovish about inflationary pressures indicating no rise in interest rates soon. From the UK we have some housing data, inflation measure and the FOMC minutes.

Thursday
Today is much quieter with no UK data of note. From the EU there is a measure of confidence, but most data today is from the USA. US data includes jobless claims and Inflation data.

Friday
We end the week with UK Retail Sales and further inflation data from Germany and Canada.

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Sterling up despite BoE leaving rates on hold

11th February 2011
Good morning. After the Bank of England left interest rates on hold Sterling fell as expected. Later in the day however the pound bounced back on expectations rates would need to rise later in the year. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1856
• GBP/USD 1.6063
• GBP/AUD 1.6101
• GBP/NZD 2.1218
• GBP/CAD 1.6014
• GBP/CHF 1.5588
• GBP/ZAR 11.682
• GBP/JPY 134.04
• GBP/HUF 322.89
• GBP/NOK 9.4272
• EUR/USD 1.3548

Bank of England keep interest rates on hold

The Bank of England's Monetary Policy Committee (MPC) has kept UK interest rates on hold at 0.5%, and unveiled no new quantitative easing measures. Both decisions were expected, but the level of division will not be clear until the minutes of the meeting are released.

Immediately after the decision Sterling fell sharply as there was a small chance that rates may have risen. The dip was short lived however, and later in the afternoon Sterling recovered on expectations that interest rates will rise later this year.

At the MPC's January meeting, there was a three-way split among its nine members, with 2 voting for a rate rise and and one for more QE. So the Bank faces a difficult choice to either keep interest rates low to try to aid the economic recovery, or raise them to try to cool inflation.

Raising rates takes demand out of the economy and slows down inflation. But it also increases the cost of borrowing and there are concerns this may tip the economy back into recession. Higher rates also strengthen the pound due to the higher yield for investors.

As the CBI Chief economist said yesterday "The MPC is right to hold off on rate rises for now as an increase will do little to alter the path of inflation in the short term, which is being driven higher by commodity prices and tax," He added, "The contraction across the economy in the final months of 2010 may well have been a blip, but as the bigger risk now appears to be growth, the MPC should continue to hold steady until the picture becomes clearer and the economy is firmly back on an upward track," she added.

So, the uncertainty over if and when rates will rise continues, and this is causing the upward and downward swings in the value of Sterling at the moment. It's likely this volatility will continue depending on how further economic figures are.

Today's Data

We end the week with Inflation data for the UK. High inflation supports the case for an interest rate hike, and it’s this speculation that’s driving strength in the pound at the moment. So, higher than expected figures could give the pound a lift. US Consumer Sentiment ends the week.

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Effect of Interest Rates on Sterling exchange rates

10th February 2011
Good morning. Despite figures yesterday showing a record high UK deficit, Sterling didn't fall too much, holding firm ahead of today's Interest Rate decision. Earlier this week our Director of Foreign exchange discussed Interest Rates on CNBC. We'll look at this in a moment after the usual snapshot of rates as at 08:30am:

• GBP/EUR 1.1762
• GBP/USD 1.6056
• GBP/AUD 1.5978
• GBP/NZD 2.0900
• GBP/CAD 1.6003
• GBP/CHF 1.5465
• GBP/ZAR 11.656
• GBP/JPY 132.74
• GBP/HUF 320.12
• EUR/USD 1.3650

Director of Foreign Exchange on CNBC

Earlier in the week our Director of FX discussed Interest Rates on CNBC Markets. You can watch the clip here on YouTube.

Interest Rate Decision Today

At 12:00pm the Bank of England will announce their latest interest rate decision. It's expected rates will yet again be left on hold at 0.5%, however there is a very small chance that they will raise rates to combat rising prices.

It's this speculation of a rate hike that has been strengthening the Pound recently, and there is the chance of a rate hike priced into the current value of Sterling. So, if rates are indeed left on hold we expect Sterling to fall today vs other currencies. Of course in the unlikely event rates are pushed up, the pound will likely gain significantly against other currencies.

The Bank of England is well aware of the economic risks that inflation poses to UK economic growth. A key objective for the governor of the Bank of England, Mervyn King, has been to talk down the value of the pound.

When it comes to re-balancing the economy, a weak pound is attractive as it boosts exports. The production side of the economy which produces most of our exports is now growing faster than anything else however this is not enough to combat the deficit alone. In that sense, a higher pound could threaten the one part of Britain's recovery which is providing growth.

So, the Bank of England is unlikely to raise interest rates as they don’t want a stronger pound to risk the fragile economic recovery. For this reason we expect downside risks for the Pound today. What does this mean? It's more likely to drop than it is to gain. If you need to buy currency consider placing a Stop Loss order to pretect against a fall.

Today's Data

Focus shifts back to the UK today, with Industrial Production and Manufacturing production figures. As these sectors are driving the UK’s economy at the moment, these are very important releases and could cause volatility for Sterling. There is also an interest rate decision, but it’s very likely rates will remain on hold at 0.5%

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Pound falls on bank tax levy

9th February 2011
Good morning. Yesterday an increase in Britain's tax levy on banks hurt the pound, and exchange rates against the Euro and US Dollar fell throughout the day. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1786
• GBP/USD 1.6096
• GBP/AUD 1.5888
• GBP/NZD 2.0842
• GBP/CAD 1.5995
• GBP/CHF 1.5526
• GBP/ZAR 11.596
• GBP/JPY 132.63
• GBP/HUF 317.94
• EUR/USD 1.3652

Sterling falls on Bank tax levy

Yesterday the UK put an extra £800m tax on banks, taking a much harder line on the banking sector as they try to do a deal to curb bonuses and free up business lending. The government said it will impose the full amount of a planned levy on bank balance sheets this year, instead of phasing it in. The news did not help the pound, and as a result exchange rates fell steadily all day.

"The bank levy announcement put the equity market under pressure, and it's taken the steam out of sterling today," said Ian Stannard, senior currency strategist at BNP Paribas. "We think sterling's going to struggle now given the extent of the rate hikes that have been priced in. Things are swinging back to sterling reacting more to negative news," he added.

In recent weeks the pound has risen on the expectation interest rates would go up this year earlier than expected. This has been priced into the market and focus is now shifting to the bad news surrounding the UK, and that's why Sterling is falling.

Interest Rate decision tomorrow

Tomorrow the Bank of England announce their latest interest rate decision. It's likely rates will yet again be left on hold at 0.5%. It's March 2009 since rates were changed.

There's a very good article from the BBC today on the effect of interest rates on the value of the Pound. You can read this here.

Most analysts seeing little chance of a change and attention focused more on next week's inflation data and quarterly BoE inflation report for any clues to the timing of future monetary tightening.

Today's Data

Very quiet day with only German Trade Balance figures. This is a balance between imports and exports. A Steady demand for German exports would strengthen the Euro, making it more expensive to purchase.

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Pound hits 3 week high vs Euro

8th February 2011
Good morning. Sterling rose to a 3 week high against the Euro yesterday, and was also up against other currencies on renewed speculation that interest rates would climb. It was not to last though, as the Euro regained some strength pushing GBP/EUR back down. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1831
• GBP/USD 1.6140
• GBP/AUD 1.5836
• GBP/NZD 2.0737
• GBP/CAD 1.5949
• GBP/CHF 1.5380
• GBP/ZAR 11.644
• GBP/JPY 132.31
• GBP/HUF 316.31
• GBP/HUF 316.30
• EUR/USD 1.3637

Pound briefly touches €1.19 vs Euro

The Bank of England's Monetary Policy Committee (MPC) meets this Thursday to announce their interest rate decision. While it's widely predicted that the bank will leave rates on hold at 0.5%, investors have been pricing in a growing risk of a hike as early as this week which has lifted the pound.

Speculation has been growing all year and the last minutes of the meeting revealed BoE policymaker Martin Weale joined Andrew Sentance in voting for a 0.25% rate hike. This has been supported by firmer UK data and the expectation of higher rates helped strengthen the pound to a 3 week high, briefly getting above €1.19

"A rate hike this week would be a surprise and sterling would definitely move higher on it, but the general feeling is that there is a high possibility of a hike in the next few months," said Neil Mellor, currency strategist at Bank of New York Mellon.

So the Pound's going to rise then?

Not necessarily. Despite strong expectations of a rate rise, there are concerns that a such an increase could unsettle an economic recovery. Analysts are worried that tax increases, spending cuts by the government and expected job losses in the public sector in the coming months could hurt economic growth.

If they take the view that the economy needs to settle before rates can go up, then this would weaken Sterling and push exchange rates lower. Indeed most of the gains vs the Euro recently has been on figures making it unlikely the EU would raise rates, when weak German industrial data further dampened these expectations.

Summary

So it's rate hike expectations both in the UK and the Eurozone that is causing the swings in GBP/EUR rates at the moment. As speculation gathers on which economy will raise rates first, GBP/EUR rates will likely remain volatile and it's impossible to predict where it will go in the short term.

Yesterday presented a short lived opportunity to buy at the best rates for many weeks, but unless you are able to move quickly you can easily lose out as spikes often fall away again very quickly.

For this reason it's important to have a trading facility with the Foremost Currency Group open and ready to use. It is free, and does not place you under any obligation to trade with us; it simply enables us to provide you with quotes and means you can call us for information on markets and exchange rates. To register now follow this link:

Today's Data

UK data today is Retail Sales and House Price information. The last measure of Retails Sales was much worse than expected. We expect an annual 0.3% decline and if it’s lower Sterling may weaken. There are also some Industrial Production figures from Germany today.

Pound vs Euro / Pound vs US Dollar forecast

Good morning. In today's Report:

• Pound gains against Euro on interest rate expectations
• UK Manufacturing pushing GBP higher against USD & EUR
• Outlook for remainder of February
• The week’s data that may affect exchange rates

(For currencies other then EUR and USD, contact us for a consultation)

Sterling vs. Euro; up on weaker single currency

Sterling recovered last week from some of the losses incurred the week previous off the back of positive UK data and the Eurozone Interest Rate announcement. The Pound made steady progress throughout the week ending almost 2 Cents higher than it started.

In the UK important data of note in the early part of the week was strong manufacturing data in the form of ‘Manufacturing Purchasing Managers Index (PMI.) Broadly speaking, this is an indicator of economic health of the manufacturing sector. The result exceeded expectations and indeed was the highest reading since the survey’s inception in 1992.

Such was the strength of the reading, it over shadowed the release of mortgage approvals for January which was worse than expected and furthermore prompted renewed speculation of an interest rate rise and therefore pushed the Pound higher against the Euro.

There was more good news for Sterling on Thursday as the Services PMI showed that the services sector expanded at the fastest pace in 8 months. This was followed with UK house price data which came in well above expectation at 0.8% growth.

By this point the raft of positive data had led analysts to speculate that an interest rate rise could occur in the UK as soon as May – However, with more important data releases this week, such speculation over this matter could prove to be a little premature.

In the Eurozone the currency’s performance was stunted as expectation were dampened with the news on Thursday that interest rates were kept low at 1%. Trichet’s comments and viewpoint disappointed investors who were hoping for a much more Hawkish statement especially after inflation data earlier in the week which came out above expectation.

Sterling vs. US Dollar; Rates hit 4 month high

Sterling continued its recent good form against the Greenback in the early stages of last week, finally seeing the pairing break the tough $1.60 technical barrier that seemed so elusive. The pound ended up reaching a four month high of 1.6279 which in fact was perilously close to a 1 year high, missing that feat by less than 0.1%:

This spike came following positive information from the UK with Services and Manufacturing PMI (Purchasing Managers Index) both significantly better than expected, and represented excellent buying opportunities.

As is often the case this spike was short lived as on Friday afternoon trading saw investors begin to return to the safe haven currency following an improvement in unemployment figures for the US, a sign that their recovery is gathering pace.

It would take a very brave person to call the outlook for the pairing at the moment as so many conflicting views suggest strength or weakness for either currency. On one hand the Pound appears to be in a worse position with the US posting better unemployment levels as mentioned earlier, and the UK recently announcing 4th quarter GDP results being negative therefore meaning if the first quarter of this year follows suit the UK will again be in recession.

The flip side of this is the news that NIESR (National Institute of Economic and social research) predict the bank of England will raise interest rates 3 times this year, the first expected in May, normally this is a decision which would strengthen Sterling’s position greatly and with the US seemingly further behind that makes the greenback potentially a less attractive option for investors looking for a suitable return.

Weekly Economic Data that may affect exchange rates

Below we list the main data released for the week ahead. The main things to watch for are the inflation figures for the UK. The implication of these economic releases will differ depending on the currency you need to buy or sell. For a free consultation on how this could affect the cost of your currency requirement, open an account with us today. This is free to do, doesn’t obligate you in any way, and simply gives you access to our market knowledge and commercial exchange rates.

Monday
Today’s data is most EU based. We have Factory orders from German and a measure of investor confidence. The Euro is weaker due to a low chance of an interest rate hike. Low confidence could compound the weakness. From the USA we have some information about consumer borrowing.

Tuesday
UK data today is Retail Sales and House Price information. The last measure of Retails Sales was much worse than expected. We expect an annual 0.3% decline and if it’s lower Sterling may weaken. There are also some Industrial Production figures from Germany today.

Wednesday
Very quiet day with only German Trade Balance figures. This is a balance between imports and exports. A Steady demand for German exports would strengthen the Euro, making it more expensive to purchase.

Thursday
Focus shifts back to the UK today, with Industrial Production and Manufacturing production figures. As these sectors are driving the UK’s economy at the moment, these are very important releases and could cause volatility for Sterling. There is also an interest rate decision, but it’s very likely rates will remain on hold at 0.5%.

Friday
We end the week with Inflation data for the UK. High inflation supports the case for an interest rate hike, and it’s this speculation that’s driving strength in the pound at the moment. So, higher than expected figures could give the pound a lift. US Consumer Sentiment ends the week.

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Pound gains against Euro on ECB comments

4th February 2011
Good morning. The pound gained against the Euro yesterday as the European Central Bank president dampened expectations for a rate hike in the Eurozone, weakening the single currency. At 08:30am rates are as follows:

• GBP/EUR 1.1854
• GBP/USD 1.6167
• GBP/AUD 1.5852
• GBP/NZD 2.0892
• GBP/CAD 1.5989
• GBP/CHF 1.5295
• GBP/ZAR 11.724
• GBP/JPY 131.82
• GBP/NOK 9.2664
• EUR/USD 1.3637

ECB Comments weaken the Euro

Sterling pared gains versus the dollar on Thursday in a move driven largely by a sharp drop in the euro after European Central Bank President Jean-Claude Trichet dampened expectations for a rate hike in the euro zone.

Trichet's comments, which came after the ECB's decision to keep interest rates at a record low 1 percent as expected, disappointed investors who had expected a more hawkish statement after recent inflation data came in above forecast.

Also helping the pound gain were figures showing that activity in Britain's services sector expanded at its fastest pace in eight months. This weakened the Euro and rates are now above €1.18.

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Sterling gains against Euro & USD on Construction Data

3rd February 2011
Good morning. Sterling is slightly higher this morning, again boosted by expectations of an interest rate hike. The good economic figures from the UK of late now seem to be fully priced into the market, and at 08:30am this morning, exchange rates are as follows:

• GBP/EUR 1.1757
• GBP/USD 1.6221
• GBP/AUD 1.5994
• GBP/NZD 2.0968
• GBP/CAD 1.6007
• GBP/CHF 1.5272
• GBP/ZAR 11.607
• GBP/JPY 132.31
• GBP/HUF 315.18
• GBP/NOK 9.2799
• EUR/USD 1.3795

So what has caused the Pound to gain against the Euro/US Dollar?

The pound has been boosted by a warning from Bank of England monetary policy committee member Andrew Sentance against delaying raising interest rates to tackle inflation. Bank of England deputy governor Charles Bean was also quoted as saying the Bank may have no choice but to increase rates if commodity prices rise further.

As we outlined in yesterdays report, higher interest rates strengthens the Pound, and the currency markets are pricing in this interest rate expectation into the value of Sterling.

"The case for a rate hike is becoming more compelling and sterling is benefiting on the back of that," said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank.

Construction Data also helping Sterling

The pound has also due to better construction data. Against the US Dollar the pound has risen to its highest level in three months, buoyed by a return to growth in the construction sector in January.

CIBC currency strategist Jermemy Stretch said the bigger-than-expected rebound in construction "plays into the hands of the rate hike story". The rise in the pound, however, will not be welcomed by exporters as it makes their goods more expensive for foreign buyers.

The construction data follows similar positive news from the manufacturing sector on Tuesday, which showed that UK manufacturing in January expanded at its fastest pace since records began in 1992. These combined has helped push the Pound higher.

Today's Data

Retail Sales are released for Germany and Europe today. It’s a good barometer of consumer confidence, and so we may see volatility in GBP/EUR rates today. The US has some jobless figures at lunchtime, which may weaken the US further if more than 4m people are claiming.

Summary

Going forwards analysts now think these figures are priced into exchange rates. Given the fragile UK recovery and some figures suggesting the economy may head back into recession, we think these gains may be limited.

In recent months gains like these have proved to be short lived, as focus returns to a shrinking economy and austerity measure that have still to be felt. For this reason, if you need to buy currency with Sterling, contact us to discuss our contract types such as Stop Loss orders.

This allows you to place a lower limit where your currency will be bought should rates start to fall. In this way you can still take advantage of any gains in the rate, but still be protected against a downturn and have a worst case scenario of what your currency will cost.

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Sterling gains on Manufacturing Data; GBP/USD 11 week high

2nd February 2011

Good morning. Well, yesterday was a mixed day for Sterling. Strong manufacturing data strengthened the pound to an 11 week high against the US Dollar. Poor housing data kept gains in check though. At 08:30am rates are as follows:

• GBP/EUR 1.1697
• GBP/USD 1.6186
• GBP/AUD 1.5984
• GBP/NZD 2.0727
• GBP/CAD 1.5989
• GBP/CHF 1.5117
• GBP/ZAR 11.472
• GBP/NOK 9.2173
• GBP/JPY 131.81
• EUR/USD 1.3834

Manufacturing Data boosts Sterling

Data released yesterday showed the manufacturing Purchasing Managers Index (PMI) climbed to 62.0 in January from an upwardly revised 58.7 in December. That was the highest reading since the survey began in 1992 and well above the consensus forecast of 57.9. The better figures showed that the recovery in the UK is largely being driven by the manufacturing sector.



Sales overseas helped by a weaker pound has given this sector a lift recently. Against the US Dollar we are now close to a 3 month high. Against the Euro however gains were limited, as interest rate expectations both here and in the EU kept the Euro stronger than the US Dollar.



So does this mean an interest rate hike in the UK?



The figures suggest the manufacturing sector continues to enjoy strong growth even as economic activity elsewhere remains subdued. Some economists said the data increased the likelihood of a rise in interest rates in the near future.



Ross Walker of RBS, said the PMI brought forward the risk of a rate rise "sooner rather than later". It is this expectation of higher rates that is giving Sterling a lift. Why? Higher interest rates mean a higher return for investors. This drives investment into the UK, and with it creates a demand for Sterling. When something is in demand, it's value increases and this is what we are seeing at the moment.

However, gains may be limited as some analysts think speculation for a rate rise in the first half of the year was excessive, given manufacturings relatively small contribution to UK GDP. The fragile state of the housing sector and a weak outlook for consumer credit were also nagging on investors' minds.



Attention now moves to construction and services PMI data due on Wednesday and Thursday respectively after both sectors contracted in December.

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Sterling gains against Euro & US Dollar Feb 2011

1st February 2011
Good morning. Sterling rose against the US Dollar and the Euro yesterday, lifted by gains in the euro on data showing the risk of higher inflation in the euro zone, while investors brushed off concerns about political unrest in Egypt. At 08:30am rates are as follows:

• GBP/EUR 1.1698
• GBP/USD 1.6058
• GBP/AUD 1.5997
• GBP/NZD 2.0699
• GBP/CAD 1.6011
• GBP/CHF 1.5142
• GBP/ZAR 11.453
• GBP/JPY 131.36
• GBP/NOK 9.2236
• EUR/USD 1.3720

Sterling gains on EU/UK Interest Rate expectations

Sterling gained in line with gains in the Euro, which rallied after data showing a higher than expected jump in inflation further fuelled speculation for higher euro zone interest rates. Sterling rose in line with the single currency, gaining against all currencies.

Expectations of higher inflation have also been brewing in the UK. Writing in a UK newspaper, Bank of England policymaker Martin Weale said a small rise in interest rates would now cost less in the long run than higher ingrained inflation. Still, he added that an increase in rates would not be needed should recent economic weakness lead to a sustained downturn.

So, the scales are finely balances at the moment. Either the UK will return back to growth, and economic figures will show that the recovery is working. If so, the pound may gain and it's likely interest rates will rise giving Sterling a further boost.

If however figures show the economy is indeed heading back into recession, there will be no need to raise rates, and Sterling will weaken significantly.

So will Sterling now gain further against US Dollar and Euro?

The pound ended January roughly 2 % higher versus the US Dollar, pushed higher on anticipation that UK rates may rise as early as in the first half of the year. BoE minutes last week surprised markets by showing Weale joined colleague Andrew Sentance in voting to raise UK rates by 25 basis points earlier this month from a record low 0.5 percent.

It's important to note however that this was before 4th quarter data showed a shock contraction in the UK economy, reminding investors that higher rates may choke the economy's fragile recovery, which would be negative for the Pound.

At the same time, price pressures could trigger stagflation, which could weaken the currency. Some analysts said the speculation that UK rates will rise before U.S. ones would help the pound to maintain its upward trend against the US Dollar. Against the Euro however gains will probably be limited, as the EU is now stronger and expected to raise interest rates before the UK.

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