The British pound hits a 2009 high against the Euro after UK inflation report

The British Pound rose against the greenback and edged up to its highest level this year against the euro on Tuesday after data showed UK inflation fell less than forecast in May. The British annual consumer prices index fell to 2.2 percent in May from 2.3 percent in April, leaving the rate still above the Bank of England's 2.0 percent target. Although annual CPI is now at its weakest since January 2008, analysts had forecast a bigger fall to 2.0 percent. Analysts said the figures will help dispel concerns that UK inflation could be set for sharp falls, while adding to the raft of UK data recently which have fanned the belief that the economy is on the road to recovery. "This is another set of sterling positive data," Credit Suisse currency strategist Ray Farris said. "Data in the UK have surprised positively consistently and indicate that the UK is in the lead among the core G10 economies in recovering from recession," he said. The GBP/USD is currently trading $1.6395 as of 8:45am, London Time.

Housing starts rose more than forecast in May while industrial production fell, offering a picture of an American economy still struggling to emerge from the deepest recession in half a century. Homebuilder’s shares moved forwards for the first time in five days after the housing report reinforced evidence that the industry’s decline, now in its fourth year, will end in the second half. At the same time, rising unemployment may prevent any boom after the bust, and stunt a manufacturing recovery. The Fed’s production report showed manufacturing, which accounts for about fourth-fifths of the total, dropped 1 percent after a 0.6 percent decrease in April. Factory production was down 15 percent since May 2008, the biggest 12-month drop since 1946.

The euro slid on Wednesday, losing the gains made after Russia suggested the need for a reserve currency other than the greenback, while the yen rose as a dip in investor confidence prompted a move out of riskier assets. Heads of Brazil, Russia, India and China ended a summit on Tuesday demanding a greater say in the global financial system but steered clear of hammering the dollar's reserve status. The Dollar fell on Tuesday after a Russian official said the currency issue would be discussed at the summit, dropping sharply against the euro and yen. The Aussie dollar and the euro have been rising against the Greenback and yen since March as investors grow more confident that the worst of the financial crisis was over and the speed of the global downturn was slowing. The EUR/USD is currently trading at $1.3880 as of 9:09am, London time.

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