Sterling holds firm



Sterling has started the week above 1.51 against the USD and over 1.10 against the euro as it looks to continue consolidating after suffering heavy losses last week. Sterling was cushioned by improvements in consumer confidence and UK PMI which showed gains in the UK service sector. The FTSE also climbed to an 18 month closing high on Friday and pushed over 5600 this morning before falling back a little. The recent economic data from the UK and the not so bad non-farm payrolls is helping to allay fears of a double dip recession- could this lead to further rallies in the equity markets? If so we can expect to see the return to confidence accompanied by selling pressure on the USD and the JPY, some gains in the GBP and EUR and more broadly in the commodity currencies such as the AUD, ZAR and CAD.


The markets are also breathing easier on the Greece situation with the new austerity measures viewed favourably by the markets. The over subscription of the bond sale on Thursday was a welcome relief; in addition comments from French President Sarkozy stating "If Greece needs help, we will be there" also helped calm fears. It would be astonishing if the EU sat by and let Greece default but the theme at the moment is for Greece to look tackle their own problems- this is also the stance of the Greek PM. The EU are also ready to propose a European Monetary Fund to build capital for scenarios like Greece. The euro has gained a little against the USD on the improved outlook but is struggling to push above 1.37. Economic data from Germany today will not be helping the euro as January Industrial Production came in weaker than expected.