Daily currency report

The pound recovered slightly against the other majors supported by UK producer prices. The implication is that if inflation remains a persistent threat, it could prevent the Bank of England from easing monetary policy as quickly as it would like.

GBP

The sterling gained ground across the board as higher food and petrol prices pushed output inflation up to 5.7 per cent in January, and took the annual rate of Producer Price Inflation to 18.7 per cent. The data was interpreted as a blow to the BoE as it will limit its scope to cut interest rates aggressively in a bid to stave off an economic downturn. Economists are concerned that persistently high output prices will eventually filter through into wage inflation.

USD

The dollar held steady benefiting from a slight recovery in the Dow and also from comments made by St Louis Federal Reserve President William Poole. Mr Poole said that the US economy appears to be likely to avoid a full-blown recession, and that the Fed's interest rate targets are well-positioned to stabilise the economy.

EUR

The euro weakened as investors began to price in a poor reading from the German investor confidence survey. Signs of a weakening economy will add to the pressure on the European Central Bank to ease their monetary policy and begin to cut, rather than hike, interest rates.

JPY

The Bank of Japan Governor, Fukui, is due to end his term in March, Deputy Governor, Toshiro Muto, is the most likely heir at the present time. This is fuelling speculation in the market that Japan will see an interest rate cut towards the end of the year, opposing Mr Fukui's gentle approach to raising interest rates in Japan.