Sterling hit its highest level against the yen in 15 years and rose versus the dollar on Friday as risk appetite and interest rate differentials continue to support the high yielding British currency. The yen fell as the Bank of Japan left rates on hold at 0.5 percent and Governor Toshihiko Fukui's comments gave no clear clues that the BOJ will tighten monetary policy any time soon.
High yielding currencies like the pound and Australian and New Zealand dollars got a boost and the low yielding yen suffered when US CPI data showed prices growing at their lowest level since March 2006. Weaker US inflation data made investors more bearish on prospects for interest rate hikes there while investors still anticipate at least one more interest rate hike from the Bank of England this year.
However investors remain bullish on the prospects for the world's largest economy, with the New York Fed's Empire State index rising to 25.8 in June from 8.0, the highest since June 2006.
"Risk appetite is strong which supports the high yielding pound," said Naeem Wahid, currency strategist at Halifax Bank of Scotland Treasury Services. "Prospects for strong global growth are supporting the carry trade." In the carry trade, investors borrow low-yielding currencies like the yen to buy higher yielding assets.
At 1522 GMT the pound was up 0.8 percent at 244.20 yen, after hitting its highest level since September 1992, and up 0.4 percent to $1.9774 versus a broadly weaker dollar. It was steady versus the euro at 67.61 pence.
UK data on Friday showed pay growth eased to 3.0 percent in the three months to May from an upwardly revised 3.1 percent in the period to April. The figures from pay specialists Industrial Relations Services should help reassure Bank of England policymakers that workers have not won bigger pay rises to compensate for higher inflation.
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