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Sterling

Sterling rose against the dollar on Friday, lifted by broad weakness in the U.S. currency and by an opinion poll showing the opposition Conservatives on course to win a majority in an upcoming general election.

The pound's movements were driven mainly by the dollar, which fell on reports U.S. President Barack Obama plans to nominate San Francisco Federal Reserve Bank President Janet Yellen, seen by many as dovish, as central bank vice chairman.

It also gained support early in the session by an online opinion poll by Angus Reid Public Opinion showing the Conservatives well ahead of the ruling Labour Party, contrasting with other surveys showing the race too close to call.

Euro

Risk appetite has picked up strongly on Friday's European session despite concerns about the odds of Chinese government tightening monetary policy to curb inflation, the Euro and Pound soared against the Dollar, which dropped across the board.

With risk appetite returning to the markets, the euro and the pound have both posted major gains at the expense of the Japanese yen in this week's trading. Both European currencies have followed almost identical paths, extending three-day rallies to the tune of more than 300 pips versus the yen.

Euro recovery from week-lows at 1.3535/45 area on Mar 9 and 10 has broken to levels above 1.3700 on European session to hit a fresh 3-weeks high at 1.3738 on improved risk appetite which is weighing the Dollar across the board

Dollar

US retail sales showed a surprise rise in February as consumers braved extreme bad weather to get to the shops.

The US Commerce Department said retail sales rose 0.3% last month, whereas forecasts had predicted a fall of 0.2%.

The rise, the biggest since November, fuelled hopes that economic recovery is gaining momentum and helped to boost shares on Wall Street.

Parts of America were hit by major snow storms in February, sparking concerns that consumers would remain at home.

The overall gain in sales was held back by a 2% fall in car sales, reflecting in part the recall problems at Toyota.

Excluding cars, sales rose 0.8%, far better than the 0.1% rise outside of autos that economists had forecast.

Confidence among U.S. consumers unexpectedly declined for a second month in March, a sign Americans are discouraged about the labor market.

Gains in confidence that may encourage Americans to pick up the pace of spending depend on payroll growth after the loss of 8.4 million jobs the last two years. Retail sales unexpectedly increased last month, a separate report from the Commerce Department showed today.

“Spending will be holding up relatively well for the remainder of this year but it is not going to come roaring back until we get the jobs necessary to lower the unemployment rate,” said Ryan Sweet, an economist at Moody’s Economy.com in West Chester, Pennsylvania.

Stocks fell after the report, with the Standard & Poor’s 500 Index declining 0.2 percent to 1,148.19 at 10:12 a.m. in New York.

Sterling started yesterday morning making up some of its recent few days of dramatic loses after a purchase manager’s index showed the UK services sector recorded the strongest expansion in more than three years, the figures jumped to 58.4 from 54.5 in January where anything over 50 indicates expansion. This was followed by a strong rise in consumer confidence which came in at 80 a substantial rise from the predicted figure of 71 and the highest level it has reached in two years.

The UK manufacturing data which was released on Monday showed the British manufacturing sector expanded faster than expected in February, matching the previous months 15 year high rate of growth.

Sterling was boosted by the data but there is still some scepticism with investors as these figures are in line with the economy heading on the road to recovery but still thoughts are shadowed over the upcoming general election and the possibility we will see further asset buying. Traders seemed somewhat cautious after the recent volatility we have seen over the last few days but we saw the pound rise against 13 of the 16 most traded currencies.

Further support was given to the pound from talk Prudential’s purposed buy out of Asian insurers

AIG may fall through over concern the steep fall in Prudential’s share prices will complicate the deal, their shares rose 1.8 percent yesterday after dropping 20 percent over the last two days.

Sterling reached highs of $1.5119 against the dollar which was up from Monday’s low of $1.4781, this was partially due to a selloff of the dollar after employment data in the US showed a rise in the level of unemployed. The pound has seen an 8 percent fall against the dollar this year of which we saw over 4 cents movement on Monday.

Sterling did not fare as well against the euro where we saw a day’s high of €1.1046 but ended the day trading around the €1.10 mark due to sudden strength in the euro.

The euro rose to its highest level against the dollar in the last two weeks after Greece announced spending cuts and tax increases all aiming to cut their current monetary deficit. This shows the Greek government are committed to taking all the necessary steps to put a credible plan in place to reduce their current fiscal position. We have seen the euro fall over four percent against the dollar this year.

All eyes will now be on the Bank of England’s policy decision held today, we are not expecting to see any changes to interest rates which are currently at a record low, but there is some uncertainty to the direction they will go with its quantitative easing programme.

Data released today includes Housing data in the UK and BoE interest rate decision. In the euro zone we see GDP figures and interest rate decision. In the US jobless claims data is released and pending home sales.

Summary:

IN THE UK

• Sterling gains against 13 of the 16 most traded currencies.
• PMI data released shows strongest expansion to the services sector in the past 3 years.
• Consumer confidence at the highest level in 2 years.
• Prudential’s purposed buy out of AIG may fall through after concerns over falling share prices.
• Bank of England policy decision held today.

IN THE US 

• Greece announces spending cuts and tax increases all aimed to cut the current monetary deficit.
• German retail sales (MoM) 0.5% better than consensus
• Euro gains against the dollar to its highest level in the last two weeks.

IN THE EU

• Investors sell off the greenback over increase in risk appetite.
• Unemployment rises sharply in US.
• Housing data release today.

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