The Pound is trading close to yesterday’s five-year high against the US Dollar and is holding its gains against the Euro as the currency continues to be supported by comments made by key figures at the Bank of England which suggest that interest rates in the UK could be hiked sooner than investors expect. Today sees the release of the latest UK inflation data which could cause some volatility for the currency if it comes in worse-than-forecast.

US Dollar

The US Dollar recovered some ground against the Euro and Japanese Yen after industrial and manufacturing production data came in better-than-expected. Despite the positive data the currency came under pressure after the International Monetary Fund cut its forecast for US economic growth for this year. The IMF said it now expects the U.S. economy to expand 2% in 2014, down from its forecast of 2.8% in April.

The Euro

The Euro remains weaker against the Pound and US Dollar but managed to make solid gains against the Australian Dollar after the South Pacific currency was weighed down by risk aversion and the release of RBA policy meeting minutes which suggested that Australian policy makers are doubting that low interest rates were aiding the economy. Investors will be looking to today’s Eurozone and German ZEW Economic Sentiment data for signs that the ECB’s recent policy meeting has had an adverse impact upon sentiment.

Australian Dollar

The ‘Aussie’ fell against many of its most traded peers as comments made by the Reserve Bank of Australia and concerns over the conflict in Iraq weighed upon sentiment. In the minutes of its June policy meeting, the Central Bank said that it is hard to gauge how much low interest rates will counter the impacts of a fall in mining investment and tighter fiscal policy, adding that the currency was providing less assistance to rebalancing growth.

New Zealand Dollar

The New Zealand Dollar edged lower against the Pound and several other major peers as worries over the escalating conflict in Iraq continued to dampen sentiment towards riskier currencies. The currency was also weakened by yesterday’s better-than-expected data releases out of the USA.

Canadian Dollar

The Canadian Dollar was little moved against Sterling and other major peers as yesterday’s strong domestic home sales data countered some of the effects of the weaker demand for riskier commodity based currencies over the Iraq situation.

The Rand is expected to fall further today as investors forecast that today’s South African Reserve Bank quarterly bulletin will show a sizeable widening of South Africa’s current account deficit. The Rand remains vulnerable to negative domestic news after falling as much as 1.3% on Friday when credit ratings agency Fitch cut its outlook for South Africa while Standard and Poor’s downgraded its rating outright.

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