Currencies

THE British pound is expected to be little changed this week, though expectations Thursday's surprise rise in interest rates by the Bank of England is likely to undermine the currency in following weeks.

"There's mounting evidence that the slowdown in the export sector is filtering through to the service sector, which should prevent another rate rise," said Eric Fishwick, an international economist at Nikko Europe.

The pound finished last week lower, at DM2.9015 compared with Monday's opening rate of DM2.9165. It rose as high as DM2.9278 after the rate increase.

The Bank of England raised its benchmark rate by a quarter-point to 7.50 per cent, the highest it's been since November 1992. Mr Fishwick said he expects the pound to hold at about DM2.90 this week, though he sees a decline to DM2.80 by the end of June as the economy slows at the same time as accelerating German growth fuels concern about a German interest rate increase.

The Bank of England cited February's rise in average earnings of 4.9 per cent, as prompting the rate increase. That's more than the economy can sustain without pushing inflation rates up, the central bank said.

"The rise in average earnings was exaggerated by one-off bonuses paid in February," said Keith Edmonds, chief currency analyst at IBJ International. "There's a risk of higher official rates, but I reckon it's about a 33 per cent chance because the underlying trend is for lower wages."

The pound lost ground against the dollar on Friday after the US saw higher than expected jobs growth in May, fuelling concern that the US Federal Reserve Board may raise interest rates when it meets on 1July.

The pound fell to $1.6363 from $1.6402 on Monday.

"We expect one more interest rate hike in the US of 25 basis points, which would lift the dollar to $1.80 against the pound in the days ahead of the meeting," said Michael Lewis, currency strategist at Deutsche Morgan Grenfell.

"We think the pound will fall to 2.85 against the mark over the next month as the German economy picks up steam."

The dollar rose to a seven-year high against the yen, climbing to just shy of Y140. "We're in a Goldilocks economy,'' said Joe Cambria, head of spot trading at Credit Suisse First Boston. "It's not too hot, not too cold. We're still in economic nirvana. We could see the dollar rise to 141 next week."

For the week, the dollar rose 0.65 per cent against the yen. "Traders are going to buy dollars until they're given a reason not to," said Ralph DelZenero, at First Chicago. "There's no reason to hold Japanese assets right now."

Copyright IOS & Bloomberg.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat