IFX Market Report

Sterling started yesterday pulling back some of the previous day's losses against the US dollar and Euro. This was even after data released showed a deterioration in UK consumer confidence which fell to 69 in December from 74 in November, this is the sharpest fall in over a year as many economists scaled back their expectations for an economic recovery this year.

Despite the poor consumer confidence figures separate data showed UK job placements and wages rose last month.

These gains were somewhat restricted due to the ongoing concerns about the UK economy and the deeply indebted British government also the impending general election which may result in sterling being under pressure in the midterm.

Investors are concerned about sterling's prospects in light of a national election which must be held by mid-year, which is likely to underline the government's weak fiscal position.

In addition, markets are wary of the risk that the vote may result in a hung parliament, which may complicate government efforts to pass measures to stimulate the economy with reaching an agreement on what is the best course of action being difficult to agree.

News was released in the Euro zone as a European Central Bank official said the European Union would not help to bail Greece out from its fiscal problems; this did little to help sterling make any significant ground against the euro.

Many economists believe even though sterling is in a weak position and the outlook for the pound is challenging it would need to take data such as a credit rating downgrade or extension to quantitative easing for sterling to suffer and push it lower. Yet many feel as the UK economy is behind many of the other major countries in pulling out of recession any gains are far in the future.

The BoE will issue a rate decision following its monthly meeting today, but analysts are not expecting a change in interest rates or the central bank's asset purchasing programme.

Sterling hit one-week lows against the dollar and euro this morning, as the pound remained weighed down by political uncertainty as Prime Minister Gordon Brown fought off an attempt within his party to unseat him and replace him before the general election.

This morning at 10.00hrs the pound was at $1.5930, €1.1099, 11.739 ZAR, 147.95 JPY, 1.6451 CHF, 1.6450 CAD and AUD 1.7340