Chris Redfern: Sterling shines on the world stage

Sterling had a good few days last week, touching a five-year high against the US dollar and a three-year high against the euro.

The UK economic data went mostly in its favour, with continued increases in manufacturing and industrial production and a further fall in unemployment, this time to 6.6 per cent.

The pound also received a significant boost when the Bank of England governor said that interest rates could start to move higher 'sooner than markets currently expect'. Investors took that to mean that the first increase would come before the end of the year.

If the pound had a good week, the NZ dollar had a splendid one, leaving sterling in its wake and the other major currencies even further behind.

Where it was 'jam tomorrow' for UK interest rates it was jam every day for New Zealand rates. Having increased the Official Cash Rate in March and May, not only did the Reserve Bank of New Zealand raise it again, this time to 3.25 per cent, but it also said there were more increases in the pipeline.

The spreading sectarian conflict in Iraq has sent the price of oil and precious metals higher, and is weighing on stock markets, but has so far had no coherent effect on exchange rates. Admittedly the safe-haven yen has firmed up against most currencies but a broad flight to quality has yet to materialise. As with Russia's intervention in Ukraine, investors remain relatively relaxed about the economic implications.

The theme in the coming week is inflation, with consumer price index data from Euroland, Britain, the United States and Canada. In the eurozone's case it will be a question of whether inflation is low enough to prod the European Central Bank further towards full-blown money-printing quantitative easing. With the other three investors will be watching to see if inflation is yet high enough to warrant tighter monetary policy.