IFX Market Report - 24 November 2009

Sterling rose against a broadly weaker dollar yesterday, bouncing back from two-week lows hit last week, as risk appetite returned to the markets following reports on Sunday that U.S. monetary policy would remain extremely loose for some time.

Risk appetite increased and the Dollar fell because St. Louis Federal Reserve President James Bullard said the Federal Reserve should keep its mortgage-related asset buying programme beyond a planned end-date in March. Bullard will be a voting member on the Fed's rate-settling committee next year. Separately, Chicago Fed President Charles Evans told the Financial Times he expected U.S. unemployment to peak at around 10.5 percent next spring. Both sets of comments fed into risk-taking and reassured markets the Fed would continue providing ample liquidity.

By mid afternoon sterling had risen 0.7% since Friday to $1.6638 having hit a session high of $1.6645.

However risk sentiment was reined in during late afternoon trade as banks have been taking profits on risk assets and parking their cash in short-term U.S. government paper ahead of their book-closing while investors have begun taking to the sidelines ahead of the year-end.

The euro was little changed against the pound after recovering to 90 pence late last week. It was supported after data showed a flash reading of the purchasing managers' services index in the euro zone grew at its fastest pace in two years in November.

Today traders will be keeping a close eye on Bank of England Governor Mervyn King and others as they address a treasury committee on it's latest inflation report.

The highlight for UK data this week will be tomorrow’s second estimate of UK third quarter gross domestic product, which many analysts expect to be revised up slightly from a first estimate reading of a 0.4 percent decline.

At 9.15am this morning, the pound was at $1.6530, €1.1066, 12.40 ZAR, 146.57 JPY, 1.7559 CAD, 1.6728 CHF and AUD 1.8004. The euro was trading sideways against the US dollar at 1.4933.

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