Friday, 8 Apr 2011

Euro and Pound Rebound Following Interest Rate Announcements

Both the euro and the pound rebounded after yesterday's interest rate announcements as traders begin to price in further rate increases.

After the 17-nation currency sold off following the interest rate increase, the euro rebounded sharply today as traders expect further interest rate increases in the euro zone. In response for the higher rate expectations, the EUR/USD rose to a new high at 1.4420 after opening the day at 1.4391. The January high of 2010 at 1.4578 should now be targeted.

Looking at the pound, the GBP/USD rose in turn as traders expect an interest rate increase from the BOE in May. PPI m/m for March rose sharply to 3.7%, well above economists' expectations for an increase of 2.2%. The tone of the report was strengthened as the February inflation numbers were revised higher to 1.4% from 1.1%. After the release of the inflationary data, the GBP/USD was bid to a new high of 1.6426 from 1.6379. The 2010 high of 1.6460 is the next short term target for the Cable.

US whole sale inventories are up at 14:00 GMT and at 14:15 FOMC member Janet Yellen will speak. Yellen is considered a dove on inflation and thus the dollar should see little support from her comments.