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Sterling recovery continues

Sterling recovery continues

Sterling posted gains against the Dollar yesterday morning with the market deciding that last week’s sell-off had been overdone. There were also expectations that higher inflation would force the Bank of England to raise interest rates and higher nominal bonds yields helped generate demand for the Pound despite very negative real rates (the promised yield minus inflation).

In level terms, the slightly firmer tone to sterling is reflected in cable (GBP/USD) opening at the 1.36 handle. The pair had been trading as low as circa $1.3450 whilst the GBP/EUR remains confined to the 1.1765-1.1630 corridor, and is currently operating in the bottom half of this range. EUR/USD is changing hands at the $1.16 mark.

Commodity currencies benefitted from the rise in oil prices as USDNOK reached a low of 8.5459 and USDCAD traded down to 1.2558 yesterday. Overnight the dollar strengthened and halted a three-day drop lower amid the risk-off mode in the market with lower equities.

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