Yesterday saw a mixed day for sterling gaining against the US dollar but suffering losses against the euro.

Sterling rose slightly when Consumer Price Index data came in on par with consensus at 3.5%, well above the Government’s 2.0% inflation target. Investors did not see this figure as negative as it had been widely forecast, and BoE Governor Mervyn King backed up what he said last week by stating that a surge in inflation would be temporary and price pressures would subside later this year. King said January’s rise in inflation had been driven by the reversal of a cut in value-added tax, higher oil prices and pass-through from the weaker pound. At 09.45 GBP/EUR traded around €1.1499 up from €1.1475 and GBP/USD traded above $1.57.

Sterling’s gains against the euro were short-lived as analysts views are that the euro seems to have been oversold over the past few weeks, RBS strategist Paul Robinson quoted the following, ”We are seeing a lightening of euro shorts as the market awaits developments from today’s Ecofin meeting. The euro is also gaining due to slightly better risk appetite and it feels like it may have based versus sterling for now”.

Both the euro and sterling were boosted against the dollar as a strong report on New York State Manufacturing and a better-than-expected profit at the British bank Barclays and several American companies helped push stock prices higher, helped offset worries about debt and credit across the globe. This increased risk appetite especially for the euro, by late afternoon it had gained almost 2 cents from the previous day to $1.3775 EUR/USD, and dropped back down to €1.1431 against the pound. Sterling also made headway against the US dollar, gaining over a cent on the day to $1.5792.

The euro has lost ground recently over deepening worries about swelling budget deficits in Greece and other weak economies in the region. European Union countries have pledged to provide a financial bailout to Greece if needed, but have not detailed any concrete plans. They warned on Tuesday that they would demand new spending cuts and higher taxes if Greece can’t make the deficit reductions it is promising. Greece has been given a month to show evidence it is bringing its finances back in line.

Today sees the BoE minutes released, the meeting earlier this month saw Quantitative easing on hold at its current £200bn.  The policymakers votes on the programme will be released in the minutes, analysts predict that if voting came in closer than 8-1, then the pressure could be on sterling, bearing in mind it was only last week when Mervyn King said that ‘it was far too soon to say if QE was finished.

Other data this week includes Public Sector Finance data on Thursday and Retail Sales on Friday.

Popularity: 1% [?]