Sterling hits highs as investors await the U.S federal Rate fund today

The British Pound extended gains on Tuesday, hitting a high since early December against the euro, which came under broad pressure ahead of the European Central Bank's first one-year refinancing operation. A rise against the euro helped the sterling against a basket of currencies as investors continued to feel that much of the bad news on the UK economy is already priced in to its currency. Investors/traders are looking at countries whose response to the recession both fiscal and monetary, were strong and prompt enough to lead them out of the recession first, according to investors the UK and the U.S. meet that criteria. The GBP/USD is currently trading at $1.6520 as of 8:37am, London Time.

Federal Reserve officials will seek to reassure investors today they can keep short- term interest rates at a record low without causing inflation. “They would like to see longer rates lower,” said Stephen Stanley, chief economist at RBS Securities Inc. in Stamford, Connecticut, and a former Fed economist. “They need to finesse it so that people are not worried about inflation.” Fed officials could flag in their statement that the gap between the economy’s actual and potential performance has widened, making it unlikely consumer prices will start climbing. Federal Reserve Chairman Ben S. Bernanke highlighted in congressional testimony this month the “difficult decision” of timing the withdrawal of record liquidity. “You don’t want to remove accommodation so soon as to prevent the recovery from taking hold,” Bernanke said on June 3. “On the other hand, you don’t want to wait so long as to lead to inflation in the medium term.” The EUR/USD is currently trading at $1.4110 as of 8:56am, London Time.

Moody’s Investors Service said the greenback’s unchallenged status as the world’s reserve currency is supporting the U.S.’s Aaa credit rating even as the country’s budget deficit is set to quadruple this year. “In the absence of a credible alternative it’s hard to see abrupt changes and that’s not even in the interest of the creditors,” Pierre Cailleteau, managing director of sovereign risk at Moody’s, said in an interview in Tokyo yesterday. The credit rating “remains solid,” he said earlier at a briefing. “The question you have to ask is: What does it mean to be a safe haven in the end?” Cailleteau said. “The test is that when you have a big problem, either in the economy or if you have the threat of a war, where do you think people are going to put their money?”

Today's Economic Events