The British pound moved sharply higher vis--vis the U.S. dollar today as cable tested offers around the US$ 1.9925 level and was supported around the $1.9690 level. Sterling catapulted higher after the report surfaced that the British Bankers Association is reviewing the way that Libor is fixed in the U.K. The gap between Libor and the federal funds target rate is now around 57bps, much higher than normal and there is speculation that fixing banks have been underreporting demand for liquidity in the U.K. interbank market, leading to artificially low Libor fixings. This could result in higher U.K. interest rates and increase demand for U.K. assets. Cable bids are cited around the US$ 1.9605/ 1.9505 levels. The euro moved lower vis--vis the British pound as the single currency tested bids around the ₤0.7985 level and was capped around the ₤0.8095 level.
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