Pound Reverses Recent Decline

The pound reversed its recent decline against the euro and the yen as UK inflation data weakened arguments that the Bank of England should keep rates at historic lows. UK inflation data was “slightly stronger than expected” according to currency strategist at Barclays Capital in London. U.K. Chancellor of the Exchequer Alistair Darling said that the UK inflation rate is expected to reach about 3% in 2010. On December 10th the Bank of England left rates at 0.5% and kept its bond purchase program at 200 billion pounds. ($326 billion USD) UK Policymaker Kate Barker said she is cautious about increasing the bond purchase program calling the UK economy “bumpy and uneven.” She also stated, “There are reasons to think you wouldn’t want asset prices to go up too far. For me, there’s a bit of caution about how much further I’d like to take the policy.”

Euro Pressured by Austrian Banking Concerns

The euro was pressured by Austrian banking woes which came on the heels of recent Greek fiscal concerns. The Austrian press reported that the country’s central bank and its financial market regulator have put the country’s top cooperative bank on a watchlist. A spokesman for Oesterreichische Volksbanken said the bank is not at risk of nationalization and that the reports were inaccurate. The report prompted concerns about the health of the EU’s banking sector. Earlier in the week the announcement of the $10 billion dollar bailout for Dubai had eased banking concerns. Many European banks are heavily exposed to Dubai debt.

Lingering Greek Fiscal Concerns

Greek fiscal concerns remain despite the announcement of spending cuts by Greek Prime Minister George Papandreou. Tomohiro Nishida of Chuo Mitsui Trust and Banking company stated, “Persistent concerns about sovereign risk in Europe such as those in Greece and softer stock markets are lending support to the dollar.” Investors are waiting for the results of the Fed meeting taking place today and Wednesday.