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Pound Strengthens Against Majors

The British sterling advanced on Thursday as traders expect that more quantitative easing from the Bank of England is highly unlikely in the near-term. A rally in major European bourses also lifted the pound.

Bank of England governor Mervyn King said yesterday that the second round of quantitative easing was effective. At the Treasury Select Committee hearing, King said there is no hard and fast expectations that the BoE is going to do much more on asset purchases.

In February, the central bank lifted its asset purchase programme by GBP 50 billion to GBP 325 billion. While seven members voted in favor of GBP 50 billion increase, David Miles and Adam Posen sought a GBP 75 billion increase.

The British manufacturing sector expanded at a slower pace in February, data from a survey by Markit Economics and CIPS showed today.

The seasonally adjusted purchasing managers' index (PMI) for the manufacturing sector dropped to 51.2 in February from 52 in January, which was the highest reading in eight months.

Meanwhile, the U.K. house prices grew 0.9 percent on a yearly basis in February, the Nationwide Building Society said today. The annual rate accelerated from 0.6 percent, when economists were expecting the rate to ease to 0.3 percent.

On a monthly basis, house prices increased 0.6 percent, offsetting 0.3 percent fall in January. Economists had forecast only 0.2 percent rise for February.

Equities gained ahead of European Union leaders and finance ministers meeting in Brussels later in the day, which aims to finalize the second bailout package for Greece.

The initial euphoria over the ECB's refinancing operation faded yesterday after a less dovish testimony from Bernanke, who gave no signals of another round of economic stimulus.

Thus far, the U.K. FTSE 100 index climbed 0.62 percent, Germany's DAX jumped 0.70 percent and France's CAC-40 index climbed to 0.76 percent.

Around 7:30 am ET, the pound advanced above the 1.4450 level against the Swiss franc for the first time in 9-days, with the pair gaining more than 1.5 percent in the past 2-days itself. The next likely resistance level for the pair is seen around the 1.4550 level.

The Swiss SVME purchasing managers' association and Credit Suisse said that its seasonally adjusted purchasing managers' index rose to 49 in February from 47.3 in January. Although a PMI reading below 50 indicates contraction in the sector, the index exceeded economists' forecasts, who called for an increase of 48.5.

At the same time, the Swiss economy expanded unexpectedly in the fourth quarter, rising 0.1 percent quarter-on-quarter against economists' expectations for a 0.1 percent contraction. Annually, GDP rose 1.3 percent, faster than the expected 1.1 percent growth.

The pound advanced to a 9-day high of 0.8346 against the euro around 7:50 am ET. On the upside, the sterling may target resistance around the 0.8315 level.

Eurozone inflation rose to 2.7 percent in February from 2.6 percent in January, flash estimate from Eurostat showed today. Economists were expecting the rate to stay unchanged at 2.6 percent. Inflation continues to remain above the central bank's 'below, but close to 2 percent' target.

At the same time, the Eurozone unemployment rate rose to a seasonally adjusted 10.7 percent in January from 10.6 percent in December. The rate reached a new record high in January. Economists were forecasting the rate to drop to 10.4 percent in January.

The pound erased some of its Asian session losses against the yen in early deals on Thursday, hitting as high as 129.45 before holding steady around the 129.35/40 level. On the upside, the pound-yen pair may re-test yesterday's high of 129.65 in the near-term.

Japan's capital spending jumped 7.6 percent on year in the fourth quarter of 2011. That confounded economists' forecasts for a contraction of 6.5 percent following the 9.8 percent plunge in the third quarter.

The sterling also advanced as high as 1.5963 against the dollar before paring some gains around 7:25 am ET. The cable is presently worth 1.5940 with 1.60 seen as the next likely resistance level.

Looking ahead, the U.S. personal income and spending data for January, weekly jobless claims for the week ended February 24, ISM manufacturing index for February and construction spending for January are slated for release in the New York morning session.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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