Sterling started Monday morning on the back foot but made slight gains throughout the day’s trading despite recent weak economic data, poor public finances and more talk of a hung parliament in May.

With no data released during the course of the day, market movements were influenced purely by trade flow. Investors, banks and general transfers dictated demand for currency and subsequently left most currency pairs fairly range bound throughout the session.
At 4.00pm the pound had risen around 0.2% from its open price to €1.1379 and roughly 0.4% above the session low of €1.1347 producing a much tighter trading range than we have seen in recent weeks where movements of 1.0% -1.5% have not been uncommon.

Against the dollar, sterling rose as far as $1.5520, before returning to $1.5467 almost matching the open price. The pound hit a nine month low last week of $1.5345 after disappointing UK retail sales data released on Friday confirmed the UK public stayed away from the High Streets during
January. The media put this down to much of the UK being under a heavy blanket of snow throughout January, however analysts and economists aren’t so sure and will rely on February figures to show a dramatic correction to confirm this.

The euro and US dollar pair also remained relatively range bound, just after the European closing bell at 4.30pm GMT the euro was at $1.3593 a fraction of a cent above the open price.
Despite a slight dip during the day the US dollar has been helped by the US Federal Reserve’s discount rate rise last week which shows a positive sign the US financial system is on the mend.
In contrast, the Bank of England has left the door open for further quantitative easing. BoE Governor Mervyn King and others are due to testify in parliament later today on the central bank’s latest inflation report, where they predict consumer inflation to be well below its 2.0% target in 2
year’s time despite prices overshooting the target now.

Sentiment was also knocked after an opinion poll published on Sunday showed the opposition Conservative Party’s lead over ruling Labour had shrunk again potentially meaning by election
time neither party would gain an overall majority. Investors have become increasingly worried that a hung parliament would mean an incoming government would struggle to take the tough decisions necessary to bring down Britain’s substantial budget deficit.

Many traders and analysts have been looking forward to the revised 4th quarter GDP figures out this Friday. After the initial results at the end of January showed a lower than expected figure of a 0.1% growth, the revised figures which include all of the information required to determine true
quarterly performance are expected to move that figure up to 0.2%.

The original first estimate figure published on January 26th was expected to show 2009 4th quarter GDP was at 0.4%, showing signs the UK was recovering well and technically out of recession.
The actual figure of 0.1%, does confirm growth but only just. Now that the additional information is about to be released, if the figure of 0.1% does not increase it will bring a dark cloud over the
pound which has already lost 10 cents to the dollar since January.

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