Sterling maintains highs on supportive economic data

Tom Tong03/Mar/2011Currency Updates

GBP

Sterling maintained its 13-month high versus a broadly weaker dollar on Wednesday as the greenback struggled with expectations that interest rates in the US would stay lower than those in the UK and most other G10 economies. The pound was also helped by higher than forecast data from the UK construction sector which added to views that the economy is rebounding, following on from a strong manufacturing survey on Tuesday.

The dollar index skidded to its lowest levels since November as markets continued to short the currency after recent comments from Federal Reserve Chairman Ben Bernanke did little to alter the view that US official rates would be on hold at current ultra-low levels for a protracted period. But the pound lagged a resilient euro (down 0.3%) as investors positioned for hawkish talk from ECB President Jean-Claude Trichet at his press conference on today after the bank’s policy meeting.

With oil prices trading above $100 a barrel and Eurozone inflation well above target, investors expect the ECB to sharpen its anti-inflation rhetoric.

EUR

The single currency received support yesterday from expectations of ECB interest hikes as the market anticipates that the ECB will increase its anti-inflation rhetoric during the policy meeting on Thursday. It hovered around a four month high against the dollar and was fairly range bound against sterling.

Analysts feel that the ECB will begin to phase out the least significant of their crisis support measures as it paves the way for rate hikes later in the year. Many expect the President of the ECB, Jean Claude Trichet, to present upwardly revised inflation and growth predictions after strong Eurozone data of late and evidence of rising inflationary pressures. The single currency is now at risk of profit taking after such strong performance against the dollar yesterday. The market will be focused on EMU GDP figures at 10, closely followed by retail sales and then the all-important Interest rate decision at 12:45, with keen attention being paid to any rhetoric of future hikes as they are not anticipated for today’s meeting.

USD

The US dollar experienced a further session of weak trading on Wednesday, and has been struggling to gain ground as a safe haven for the risk averse.

However, Ben Bernanke (US Federal Reserve Chairman) was optimistic for the US Federal and State economies in comments made in a speech given in New York last night.

USD saw a 4 month low vs the euro and was down 0.4% vs sterling, testing Tuesday’s 13-month low.

Key figures to watch out for today are the ISM Non-Manufacturing Purchasing Managers Index and US Unemployment Claims, ahead of tomorrow’s US Non-Farm and Unemployment numbers.

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Written by Tom Tong

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