STERLING IS poised to strengthen against the euro this week, amid expectations that United Kingdom reports will show inflation remains dormant during the economy's recovery.

"The pound is probably going to be fairly firm," said Jeremy Yeats-Edwards, manager at Baring International Investments. "Interest rates are attractive and the economy is in good shape."

The pound has gained 0.3 per cent against the euro in the past week, putting the euro at pounds 0.6391 from Thursday's closing value of pounds 0.6414. Against the dollar, sterling slipped to a two-month low of $1.6108, and traded at $1.6137 late on Friday from $1.6236 on Thursday.

On Tuesday, the British Government will release estimates of its chief inflation yardstick, the retail price index, less interest payments on home loans.

The index was probably at 2.1 per cent in October, unchanged from the previous month and below the Government's target, according to economists surveyed by Bloomberg News.

On Wednesday another set of numbers is likely to show that the number of Britons out of work and claiming unemployment benefits fell by 10,000 in October, leaving the unemployment rate at a 19-year low, economists said.

That combination of growth with scant price pressures tends to support sterling by drawing investors to the nation's equities and bonds. The UK's benchmark stock index was up 2.1 per cent last week, while the yield on the 10-year UK gilt market fell to its lowest level in five months.

At the same time, short-term lending denominated in the pound offers investors a greater return that that in the euro.

"Sterling should stay strong," said Roger Allen, deputy head of foreign exchange sales at Credit Agricole Indosuez. The UK has interest rates that are higher than those in other European countries and has "a very strong economy".

An investor parking funds in three-month pound deposits earns 252 basis points more than on those in the euro.

Bank of England officials also will publish minutes from this month's Monetary Policy Committee meeting, when it voted to raise interest rates a quarter point.

Also in the pound's favour, reports last week indicated that both the Bank of England and the Government see growth accelerating in the coming months while price pressures will stay subdued. Still, the Bank forecasts faster inflation in 2001 and has left itself scope for a further rate rise in the coming months, economists said.

Higher interest rates may draw investors to a currency since they mean that the return on money-market deposits denominated in that currency also increases.

The pound is poised to lose ground against the dollar on expectations that United States inflation will stay subdued, helping US stocks and bonds hold their lustre. That view was reinforced on Friday after a report showed a stronger than expected gain in US productivity in the third quarter. "That enhances the opinion that the Fed won't do anything this week," said Rob Hayward, an economic adviser at Bank of America.

"Even if they do, it will be the last one for a long time and that's providing a positive backdrop for US assets, which has to spill over into the dollar."

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
musicOfficial chart could be moved to accommodate Friday international release day
Wes Brown is sent-off
Italy celebrate scoring their second try
six nations
Glenn Murray celebrates scoring against West Ham
footballWest Ham 1 Crystal Palace 3
Arts and Entertainment
Drake continues to tease ahead of the release of his new album
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower