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Posted March 1st, 2013 by Charles Purdy

Despite tough week sterling slightly stronger | Smart Daily Currency Note

GBP/USD – 1.5168

Sterling had a very poor start to the week – dropping to a sixteen month low against the euro and a two and a half year low against the US dollar following  Moody’s – one of the big three credit rating agencies – downgrading the UK’s sovereign rating by one grade to Aa1 from Aaa. As the week went on, sterling performed fairly well, benefiting from the turmoil on the other side of the channel as investors looked for a safer haven asset in the region. Murmurings that negative interests could  potentially be introduced by the Bank of England rates were then quashed by another member of the Monetary Policy Committee, boosting sterling. Some analysts suggest that, while poor GDP results and credit rating downgrade have driven traders to bet on sterling dropping, those positions are now being closed out and the tide may be beginning to turn. Today sees the release of the manufacturing Purchase Managers Index (PMI) data which has been broadly positive recently – if it remains so, this would support the recent strengthening. Get in touch to find out whether sterling is holding ground.

The US dollar started strongly this week making gains against most of its currency partners, but some of these gains were lost as the week went on. Headlines were dominated by the Federal Reserve Chairman’s two day testimony. The Chairman suggested the benefits outweighed the negative with regards to the central bank’s asset purchasing program, backing the central bank’s current stimulus program. The testimony gave no signs that the Fed may slow or even stop monetary easing, in spite of recent murmurings that the central bank may look to taper asset purchases later this year. The Chairman also maintained pressure on Congress to act to prevent the USD 1.2 trillion of spending cuts that are due to start taking effect as of today. Markets are unsure about the consequences of such cuts, hoping that a compromise is reached sooner rather than later. Yesterday we saw preliminary fourth quarter GDP data come out much worse than expected with a reading of 0.1%, when more substantial growth at 0.5% had been anticipated. Conversely, strong employment data showed that less new people were claiming in unemployment related benefits than expected. Today’s main release is the Manufacturing PMI data. Call now for the latest rates and updates.

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