Sterling recovers slightly against USD but worries over banks remain

Tom Tong25/May/2011Currency Updates

GBP

Sterling bounced off a seven-week low against the dollar on Tuesday as traders covered short positions after Moody’s threatened to cut its ratings on some UK banks, but analysts said the pound may continue to struggle in the short term. The pound was additionally benefited as small euro gains against the dollar benefited sterling against the greenback.

The major drivers holding the pound back remain the uncertainty regarding the banking sector combined with the stuttering economic recovery. The banking sector has been under the spotlight as ratings agency Moody’s said it may downgrade 14 UK banks, which encompasses some of the world’s leading institutions as regulators appear to be less willing to bail them out in the future.

Today’s key economic data out of the UK will include the GDP reading, due at 09:30.

EUR

The euro was pressured on Tuesday as selling by hedge funds and stop-loss offers intensified as worries over Greece’s finances weakened the single currency, bringing it closer to testing crucial support levels on charts.

The common currency had rallied against the pound and US dollar in the morning after the release of better-than-expected German business confidence data. However, it was pegged back in the direction of two-month lows against the dollar and pound as worries over Greece’s finances cast a pall over the single currency. The euro has lost roughly 6% against the greenback since early May.

USD

The dollar advanced against its major counterparts during Tuesday trading as Asian stocks slumped and commodities including oil declined, boosting demand for the safest assets.The Dollar Index approached a seven-week high before US reports today, which is forecast to show that the world’s largest economy is recovering at a faster pace and initial jobless claims decreased for a third week.

The key economic news out of the US comes this afternoon in the form of April’s durable goods orders. The forecasts are showing a sharp decline which if realised may be dollar negative.

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Written by Tom Tong

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