Chris Redfern: Sterling performance

Sterling could have come to grief last week when figures on Tuesday showed UK inflation falling to 1.6 per cent; yet further below its 2 per cent target.

But the number was in line with expectations, so investors held back. A day later, another set of ecostats put unemployment down at 6.9 per cent and sterling up by half a cent.

Although the Bank of England no longer sees a sub-7 per cent unemployment rate as the threshold for higher interest rates it is, nevertheless, another box ticked should the Monetary Policy Committee turn its mind to tightening.

As sterling sped into the lead most of the other major currencies - the Commonwealth dollars, the Japanese yen and the Northern Scandinavian crowns - remained relatively steady against one another. The euro and the US dollar tried to make a race of it but even they were left behind by around three quarters of cent.

Four other important inflation figures were also released during the week.

The US measure was higher than forecast at 1.5 per cent and an identical NZ reading was below forecast. The Canadian figure was bang on target at 1.3 per cent and the finalised Euroland figure was also in line with expectations down at 0.5 per cent. There was little price reaction to any of the numbers.

There had been more of a reaction by the Canadian dollar the previous day when the Bank of Canada left its benchmark interest rate steady at 1 per cent. In its statement, the Bank said the next rate move could be in either an upward or downward direction. Investors saw that as a reason to sell the so-called 'Loonie'.

Inflation and central banks will be in the news again this week. The Australian figure could have risen above 3 per cent while in Japan it should be close to the US and NZ level. The Reserve Bank of New Zealand is expected to continue its tightening trend, raising the official cash rate to 3 per cent.