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Sterling gains against the Euro

With no UK economic data released overnight movement in the Pound Sterling was driven predominately by movements against the Euro. The ECB met the markets expectation of a 0.5% interest rate cut overnight triggering a fall in EUR/GBP from above 0.9 to a low of 0.8950.

With US equity markets rallying 300 points from intraday lows to finish up slightly the Pound also bounced back to finish the overnight session near the highs at 1.4650 against the Dollar. Sterling remains weighed down by ongoing banking sector woes and weak share prices. London shares were down more than one percent after losses in Asia and on Wall Street.

The Euro erased some losses against the pound after ECB President Jean-Claude Trichet hinted the next rate move would not be until March.  The ECB rate of 2.0 percent, matched its lowest ever rate, and its president said inflation risks continued to diminish as the economy weakened. That prompted traders to sell Euro on expectations the ECB will continue its rate easing cycle.

However, the Euro recouped some losses after Trichet said the next important meeting would be in March as the Central Bank would have fresh economic forecasts then.

The big Dollar bounced back from its early European lows at 88.50 to open this morning at 89.80. Tonight sees the release of some key U.S data including CPI, TIC flows, Industrial Production and the University of Michigan Confidence preliminary reading all of which ensure another volatile finish to the week’s trade on currency markets.

US data was mixed with Weekly Jobless claims jumping up 524K vs. 500K forecast. December PPI dropped -1.9% vs. -2% forecast. US stocks rebounded off the 8000 level on the Dow.