CURRENCIES

THE POUND may rise against other currencies this week on speculation that the Bank of England will raise its benchmark interest rate again by the end of the year. Last week it raised the base rate to 5.25 per cent, making pound deposits more alluring. Evidence of further economic expansion may prompt the bank to raise rates more, giving sterling added lift.

"The economy is in reasonably good shape," said Stephen Hannah, director of research at IBJ International. "Since the Bank of England appears to be trigger happy, we won't be foolish enough to rule out [rate increases of as much as 50 basis points in the next six months and further pound strength]".

The pound gained 2.5 per cent against the euro last week, rising to its highest level in three months on the evidence of economic resurgence and the surprise MPC rate rise. The euro was trading at pounds 0.6450 on Friday.

The pound also rose 1 per cent against the dollar, climbing to a four- month high, and was at $1.6180 on Friday.

The pound could rise to $1.6400 in the next three months, according to economists at the Bank of Tokyo-Mitsubishi. With more rate rises by the central bank "possible before the end of the year, the interest rate structure will remain substantially higher in the UK than in the euro zone," said Derek Halpenny, an economist at the bank. He added: "The prospect of accelerating economic activity in the UK while the US slows, should cause the pound to outperform the dollar."

Economists are now looking to this week's inflation report for signs as to whether inflation is speeding up. Reports on producer prices, unemployment, wage costs and retail sales will also be released.

The underlying rate of inflation, which is the BoE's target measure, is expected to have risen to an annual 2.3 per cent from 2.2 per cent in July, still below the Government's 2.5 per cent target.

Separate figures are expected to show that the August unemployment rate held at its lowest level in 19 years as the number of people out of work is estimated to have fallen by 10,000. Producer prices are expected to be little changed.

Some economists aren't so sure rates will have gone up by the year end. "Inflation remains clearly below the target, while the economy is still in the recovery stage," said Michael Klawitter, a strategist at WestLB.

In New York, the dollar rose to a seven-week high against the euro after a report on producer prices in the US that is likely to convince investors to favour US assets over European securities. It also makes it less likely that the Federal Reserve will raise interest rates when it next meets on 5 October. The Fed has raised rates twice since June to keep inflation in check. The dollar rose as high as $1.0380 per euro.

Against the yen, the dollar was trading at Y109.08 on Friday, up from a three-year low of Y108.06 on Thursday. This came after the Bank of Japan stepped in to sell yen for the first time since 21 July.

Some traders said that repeated interventions will be necessary to weaken the Japanese currency. Over the week, the dollar gained 2.1 per cent against the euro and shed 0.9 per cent against the yen.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Client Services Manager - Relationship Management - London

£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Credit Controller / Customer Service

£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

Guru Careers: In-House / Internal Recruiter

£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project