Figures released yesterday showed that UK inflation fell 0.6% to 4.2% in December on the back of lower fuel and clothing prices which backs up the Bank of England’s prediction that inflation will be at their target level of 2% towards the end of 2012. A drop in inflation could provide a welcome boost to the UK economy in the longer term as it reduces the pressure on peoples income as the price of goods does not rise so fast, however from a short term currency point of view it can mean there is a reduced chance of a UK interest rate hike which in the past had been helping give Sterling some support. Should inflation continue to fall back towards the 2% mark as predicted it is possible we could see Sterling exchange rates fall back against the majority of major currencies.

Meanwhile in Greece important talks between the country and its private creditors are expected to resume today following the talks stalling on Friday. The talks are surrounding these creditors writing off 50% of their Greek debt which private lenders agreed to last year in the first set of Greek debt crisis discussions. It seems that a deal is necessary if Greece are to receive their next tranche of bailout cash required to pay its debtors which according to the International Monetary Fund (IMF) is by the end of March where they will need to pay €14.4bn. The closer we get to this deadline without a resolution the more uncertainty there will be over the future of the Euro which could mean we see some excellent buying opportunities but could also see further US Dollar strength as investors place money into the safe haven currency.

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