Sterling’s recent bad run against the major currencies continued yesterday, after an unexpected increase in UK Goods Trade Deficit.  The figures came in at -£7.3bn, a £0.7bn worse than expected figure which dropped investor confidence, and weighed on Sterling as this suggests that the economy may not have progressed as expected, since the UK exited the recession.

The UK’s political situation did not seem to be progressing any further.  With the election just over 2 months away, a Times Newspaper poll showed that the Conservatives were 3 seats short of a parliament majority, if it stood at this during the election a hung parliament would be called.

This sent sterling to a 3 week low of €1.1340 against the Euro, and caused it to remain trading around $1.56 against U.S.dollar, almost 4% from where we were 10 days ago, and toying with the 8-1/2 month low reached on Monday.

The Euro’s strength was higher as Greece’s bail out seemed to be on the cards.  The speculation came as head of ECB Jean-Claude Trichet cut short his trip to Australia to attend an EU Summit, after they had not been scheduled to attend. 

In the late afternoon speculation of Greece’s bail out came true, as the ECB have agreed to aid Greece in their fiscal struggle.

This boosted investor confidence, and increased Risk appetite for both Sterling and the Euro, with sterling gaining back losses against U.S.dollar, and in a 30 minute period during the late afternoon saw sterling move from as low as $1.5590 up to $1.5740.  Whilst the Euro gained against the U.S.dollar moving from day lows of around $1.37 USD to $1.3838 USD.

However the Euro’s gains against the U.S. dollar were short lived as a German government spokesman claimed the reports were unfounded which caused a sharp 0.9% drop.

Other data release in the UK saw retail figures recording their worst result for 15 years, but data showing house prices rose again.

Today

All eyes will be fixed on the BoE’s inflation report followed by BoE Governor Mervyn Kings speech, both at around 10.30 today.  Some analysts expect the news for sterling to be negative, which could see sterling suffer in the short run.  We also have Industrial Production and Manufacturing Production figures in the UK, and Trade Balance figures in the USA. 

At 9.15am sterling was at €1.1394 EUR, $1.57 USD, 1.6725 CHF, $1.7925 AUD, 140.70 JPY, 12.09 ZAR.  Whilst EUR/USD $1.3773

GBP/USD Support: 1.5594  1.5483  1.5407   Resistance: 1.5781  1.5857  1.5968

GBP/EUR Support: 1.1345  1.1299  1.1261   Resistance:  1.1429  1.1467  1.1513

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