Yesterday saw sterling strengthen slightly against the dollar during a fairly uneventful trading day. Against the euro it finished the session on a par with the morning open price, falling temporarily around lunchtime.

There were no significant UK economic data releases to push the pound in either direction resulting in sterling following trends in euro and US dollar movements. The news that Abu Dhabi have offered to help Dubai World to the tune of $10bn to help it repay a $4.1bn Islamic bond maturing later in the day did help the riskier assets carry some gains whilst the safe havens suffered.

Sterling struggled to hold these gains, the market’s negative opinion of the pound based on concern surrounding Britain’s public debt and potential threat to its triple-A sovereign credit rating was still at the back of investor’s minds. The next test for sterling will be UK inflation data on out later today which is expected to show a rise in consumer and retail prices.

At 4.30pm sterling was up 0.2%on the day at $1.6280, almost a full cent up from the session low of $1.6190 but half a cent off its session high. Against the euro it was little changed on the day at €1.1117, having earlier traded as low as €1.1050.

The dollar slipped 0.3% on a trade weighted basis against a basket of major currencies after the Abu Dhabi bail out, cooling fears of a potential debt default that have rattled global financial markets.

Possible debt defaults in Europe have also affected the markets, Greece’s credit rating was cut last week to BBB+ by ratings agency Fitch with a negative outlook as the country tries to check its vast deficit. There are also lingering worries about the UK’s fiscal health after last Wednesday’s pre-budget report was seen by investors as not doing enough to tackle the country’s ballooning deficit.

Moody’s Investors Service helped soothed some of those concerns last week saying the AAA ratings of Britain and the United States were not under threat of a downgrade right now, although a worst case scenario foresaw a cut by 2013.

Moving onto today, today’s UK inflation data for November is expected to show another increase as rising oil costs, the lagged effects of sterling’s depreciation last year and the reversal of a temporary cut in sales tax keep up the pressure on prices.

Elsewhere, in the US producer prices are released along with industrial production figures whilst in Europe the European and the independent German ZEW sentiment surveys are published.

Popularity: 2% [?]