Sterling up on inflation expectations – Canadian Dollar continues its uptrend

Sterling up on inflation expectations – Canadian Dollar continues its uptrend

03-13-2010 14:48

The Pound Sterling rose against currencies from its key trading partners, due to increasing chances that inflation will rise in the UK boosting demand for Pound-priced investments, since it could result in a number of interest hikes by the UK central bank. The Canadian Dollar has performed extremely well, as it gained 10 days in a row against the Greenback, while it also rose against various main currencies, as a result of risk seeking that spurs markets with a considerable impact on the Loonie.

UK inflation rate

A report demonstrated this Friday that consumers in the UK forecast an inflation rate of 2.5% within one year. These predictions exceed previous adjusted figures and enabled the Sterling to end its downturn against key currencies as it gained in foreign exchange markets, since higher than forecasted inflation data raise the chance that the Bank of England will expand the crisis support measures and sharpen lending criteria, such as interest rate increments, which will result in better returns on Sterling-priced investments.

Pound Sterling

Friday’s figures certainly were a relief for the Sterling that had suffered a downturn as it belongs to the less appealing currencies among the key pairs.
Furthermore, today’s data enabled a corrective movement for the Sterling against all key currencies. However, the general outlook is still gloomy, and additional declines will probably follow, particularly against gaining currencies like the Loonie and the Australian Dollar.

Loonie

The Loonie had been confronted with instability, as a result of unfavorable events in the US and China, decreasing attractiveness of high-yielding assets in forex markets. Nevertheless, the Canadian Dollar succeeded to continue its winning streak in the intraday assessment as it rose again against the US Dollar on the back of employment figures that will probably increase possibilities that the economic revival of the North American nation accelerates. The present gaining streak is the most extensive one for the Loonie in half a decade, and currency analysts speculate that it could reach parity with the Greenback in the next period.

Risk appetite forex markets

Increasing currencies are favored by stronger demand for commodity goods. Canada is the most important oil provider to the US, which is favorable for the Canadian Dollar, while domestic circumstances also provide the Loonie support, and the interest rates prospects are also improving the attractiveness of Canadian Dollar priced trading options.