Fasar khan - forex news

Fasar khan

GBPEUR/GBPUSD

The Pound rallied to a fresh 12-week high against the U.S Dollar yesterday, while the UK currency also made a move towards 1.18 versus the Euro, amid yet another round of better-than-expected economic data. UK services industries returned to growth in January, after the PMI slipped into negative territory last month, following the severe winter weather conditions.

The gauge of activity jumped to 54.5, from 49.7 in December, representing the highest reading since May and exceeding initial estimates. A reading above 50 indicates growth and the report, alongside positive manufacturing and construction data, will provide some optimism that the UK economy will bounce back from the fourth quarter slump. UK gross domestic product fell to -0.5% in the three months to December, but the buoyant pace of growth in key sectors of the economy will raise hopes that the UK economic recovery is still on track.

The VAT hike at the beginning of the year and government spending cuts are expected to hamper growth in the first quarter, but with inflation accelerating to 3.7%, speculation is intensifying that the Bank of England will have little option but to raise interest rates come May. Therefore, the Pound has rallied against all of the 16 most actively traded currencies and speculation of higher rates will continue to boost Sterling sentiment in the near-term.

The Pound rallied above 1.18 against the Euro, climbing to the highest level in two weeks, after the European Central Bank left its main interest rate at a record low of 1% and the chairman Jean-Claude Trichet poured cold water on speculation of a near-term increase. Sterling was actually up against all of the 16 most actively traded currencies by the close of trading last night, as markets start pricing in a UK interest rate hike by May.

The UK currency appreciated 1.1% against the Euro and encountered resistance in the region of 1.1850. A break above this level would signal a move towards 1.20, but any rally in Sterling should be treated with cautious optimism. Concerns over the economic recovery and stagflation could re-surface and undermine confidence in the Pound and to that end, Sterling sellers may wish to consider the benefits of a stop order.

Following yesterday's surprise improvement in UK services industries in January, BoE official Andrew Sentance's drive for higher interest rates may gain some support from other members within the Monetary Policy Committee. Earlier reports also showed that manufacturing and construction expanded beyond initial estimates, making the prospect of a rate increase ever more likely.

With the economic recovery, seemingly, getting back on track and UK inflation accelerating to 3.7% in December, policy makers will have little option but to consider a rate hike in order to maintain a level of credibility. The MPC has been split three ways on the best course of action for UK interest rates, with Adam Posen voting for further quantitative easing to support the fragile nature of the recovery.

EUR/USD

The U.S Dollar consolidated on two days of gains against the Euro yesterday, before a report this afternoon that is expected to show U.S employers added the most jobs in three months in January. The Non-farm payrolls data will probably show that the U.S labour market continued to improve last month, while average earnings edged higher.

The Euro is poised to record a weekly loss against the majority of the 16 most actively traded currencies, as EU leaders prepare to meet today to discuss the sovereign debt crisis. The single currency also came under pressure, after the ECB left interest rates on hold and said that the current rate is "appropriate."

The ECB Chairman Jean-Claude Trichet did point to short-term inflation risks, but he also stated that the medium-term risks were broadly balanced and that expectations were firmly anchored. There was disappointment surrounding the latest Spanish bond auction, which also undermined confidence in Euro denominated assets.

In the U.S, the weekly jobless claims data showed a decline of 415,000 in the latest week, from a revised 457,000 previously. The ISM services sector index also rallied strongly on the month and the data will reinforce optimism over stronger growth conditions. The Federal Reserve Chairman Ben Bernanke was more optimistic in his speech yesterday, but he also admitted that the economy is still in a slump.