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Sterling was under attack from all angles yesterday morning as traders and investors sold off the pound as if it was due to become worthless. Two main factors lead to sterling at one point approaching its biggest one day drop in over a year.
Firstly, a report over the weekend in the Sunday Times suggested the existing Government may win more seats in parliament even if the Conservative Party win more of the popular vote. The talk of a potential hung parliament returned to the forefront of trading floor gossip. With the election getting closer, the implications of a hung parliament would make it nearly impossible to pass controversial or unpopular plans to cut the ballooning budget deficit. Decisions that would usually have been decided during cabinet meetings could potentially take weeks, if not more, to pass through the House of Commons.
Secondly, UK insurance company Prudential PLC, have been linked to the purchase of part of US giant AIG’s business. The Asian insurance company AIG is reportedly going to be sold for a figure of around $35.5bn much of which is to be made of up of a cash transaction.This potentially enormous transaction worried investors as Prudential would have to sell pounds to fund the dollars needed to complete the purchase.
This lead to the pound falling below the key psychological level of $1.50 during the morning session and then in just a few minutes the pound lost almost 2.5 cents, falling to $1.4781.At 12.30pm it had made back some of the losses, trading 2.4% down on the day at $1.4885, steering it away from the biggest fall since February 2009.
Technical analysts said selling picked up after the pound made a decisive break of key support around $1.5270 late last week, around the 50 percent Fibonacci retracement of 2009 rally.
The euro made huge gains against the crippled pound as well, with GBPEUR falling to €1.0928, the lowest since early December.
Sterling hit a one-year low against the yen of 132.07 yen, while it posted its lowest rate in 25 years against the high-yielding Australian dollar Traders also dumped the pound after data showed a dip in UK mortgage approvals in January, even as mortgage lending and consumer credit rose.
UK manufacturing PMI showed the manufacturing sector expanded faster than expected last month but this was largely neglected.
Analysts said they expected sterling to stay under selling pressure against the euro, while acknowledging that euro gains may be limited by the single currency's weakness against the dollar due to ongoing concerns about Greece's debt problems.
Sterling continued its slide despite an upward revision to UK economic growth last week as concerns simmer about a tepid economic recovery, high public debt and political uncertainty.
Sentiment has also deteriorated in the last week after the Bank of England said it stood ready to return to its asset-buying scheme if economic conditions warranted. This has prompted speculators to dump the pound, with positioning figures late last week showing another hefty rise in bets that sterling will depreciate 

IN THE UK

• GBP/USD falls to fresh 9 month low
• Sterling briefly rises after stronger 4^th Quarter GDP data.
• Sterling stays pressured on weak UK outlook

IN THE US

• Dollar rises after 4^th Quarter GDP data
• Oil rebounds on weaker dollar
• Gold prices rise as dollar declines

IN THE EU

• GBP/EUR falls to low of 1.1099
• Euro loses ground to dollar after stronger US GDP data
• Euro-zone inflation edges higher

Sterling

Sterling fell against the dollar and euro on Friday after better-than-expected fourth quarter GDP data failed to offset persistent worries over the health of the UK economy.

The pound initially rose after the Office for National Statistics said economic output grew more than forecast in the final three months of 2009 but turned down as traders focused on a downward revision to the estimate for year-on-year growth.

The ONS revised its estimate of fourth-quarter GDP to 0.3 percent from an initial 0.1 percent.

However, it revised its estimate of the year-on-year contraction to 3.3 percent from 3.2 percent.

Despite strong denials from Germany that they have agreed to bail out Greece the general consensus that eventually a bailout for Greece will be finalised.

With Greece becoming old news the spotlight is now on sterling which is falling sharply trading as low as 1.1112 this morning. The possibility of a hung parliament is also pressurizing the pound and pushing it lower.

Dollar

The Greenback gained strength and rose moderately across the board after better-than-expected data on US GDP. EUR/USD fell to test a support zone around 1.3550. GBP/USD is trading at fresh 9-month low below 1.5200.

Also against currencies tied to commodities the Dollar rose but is still far from daily highs.

USD/CAD rose to test the 1.0600 zone. AUD/USD fell below 0.8900. The rally of the Dollar across the board was moderate on Friday.

The Yen also gained ground across the board and rose after GDP data, even against the Dollar.

USD/JPY retreat after finding resistance at 89.25 and currently trades below 89.10.

Euro

The euro lost ground against the dollar on Friday after preliminary data showed the U.S. economy grew 5.9 percent in the fourth quarter, slightly higher than the government's first estimate.

Final data out on Friday showed the euro-zone's inflation rate inched up to an 11-month high in

January, but should still leave the European Central Bank plenty of room to keep interest rates at very low levels to support the economic recovery.

Inflation accelerated to 1% on a year-to-year basis in January from 0.9% in December largely due to a jump in energy prices, the European Union's Eurostat agency said.

However, the headline rate, which was in line with the preliminary reading and the market consensus estimate from a Dow Jones Newswires survey, remains well below the ECB's medium-term target of just below 2%.

On a monthly basis, the consumer price index dropped 0.8% in January, the sharpest fall since January last year and slightly more than the 0.7% fall expected by economists. Euro-zone consumer prices rose 0.3% month-to-month in December

IN THE UK

• Sterling hits 9 month low vs US dollar and 11 month low vs Yen
• Rick aversion causes sterling sell off.
• UK business investment falls 5.8% in 4^th quarter
• 4^th Quarter GDP figures revised up to 0.3% from earlier 0.1% first print.
• Nationwide house price survey show first drop in prices for 10 months.

IN THE US

• Investors flock to US dollar as safe haven
• 4^th Quarter GDP figures out at 1.30pm
• US Chicago PMI and US Consumer Sentiment released around 3.00pm

IN THE EU

• EU Consumer Price Index released at 10.00am
• GBP/EUR sees 6 week low at €1.1214
• Greece debt problem still causing investors to sell off euros
• Euro get sees further support as CPI figure on target at 1.0%y/y

IN THE UK

• BoE policymaker echos comments of Kings regarding possibility of increase in QE.
• Weak UK data has put sterling under continuous pressure.
• Eyes fixed on revised GDP figures on Friday with hope of an upward revision.

IN THE US

• US Fed state interest rates will continue at record lows for an extended period.
• Dollar falls against 13 of the 16 most traded currency pairs after weak housing data.
• US durable goods order date released today.

IN THE EU

• German GDP figures on par with consensus help strengthen the euro.
• Concerns still strong over Greece’s spiraling deficit.
• Consumer confidence data released in the euro zone today.

IN THE UK

• Mixed bag for sterling as euro makes gains
• CPI data on par with consensus, gives sterling an initial boost
• Eyes on BoE minutes today
• Barclays Bank show profit of £11.6bn

IN THE US

• Strong report on manufacturing increases global risk appetite, denting dollar strength
• Better than expected profits for many American companies boost stock prices

IN THE EU

• Euro gains across board as analysts view euro as oversold
• Euro up over 2 cents against USD, almost a cent against GBP
• Greece fiscal state still a concern, 1 month to come up with a plan to cut its deficit

At 9.15am this morning the pound was at $1.5755, €1.1449, 12.09 ZAR, 142.493 JPY, 11.28 SEK and AU$1.7479. The euro was at $1.3755 against the US dollar.

Today’s key levels of support and resistance are:

GBPUSD                Support: 1.5675 1.5564 1.5504        Resistance: 1.5846 1.5906 1.6017

GBPEUR                Support: 1.1423 1.1380 1.1331        Resistance: 1.1515 1.1564 1.1607

EURUSD                Support: 1.3700 1.3645 1.3590        Resistance: 1.3805 1.3840 1.3885