IFX Market Report

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.