Sterling on Life Support

Having dropped over 6% since the turn of the year against the Euro and the Dollar, Sterling has finally began to level off, at least for the time being, and has been trading relatively sideways for the past few days. After what had seemed to be an unrestricted collapse since January, Silvio Berlusconi came to the Pounds rescue. As stalemate lingers over government elections in Italy, the heightened uncertainty regarding the country’s future leadership, and the nightmare scenario of a return to power for Berlusconi, the Euros advance has correspondingly stalled. Similarly, the Pounds decline against the Greenback has petered out this week following talks of US sequester budget cuts and a speech made yesterday by Ben Bernanke dispelling rumours that there could be a sudden easing in QE.

This morning we saw figures released in Europe that showed Germany’s Unemployment Rate rose marginally to 6.9% and the Euro Zone Consumer Price Index fell to 1.3%. This led to a drop in the Euro as GBP/EUR reached a daily high of 1.1580. Sterling is also up against the Dollar this morning, currently trading at 1.5180 and targeting a retest of the daily high of 1.5202. We may well see further movement in the rates this afternoon as German Consumer Price Index figures are due to be released at 13:00 and US GDP figures at 13:30.

Looking forward to tomorrow we will see PMI figures released from China in the morning, then Europe and finally the US in the afternoon. Market participants will be eager to see whether China’s recent return to comprehensive growth has continued, and whether the UK’s long run of poor economic data persists. Given the Pounds recent bottoming out against the Euro, positive UK data tomorrow could well initiate a rebound in Sterling.