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Sterling gains some ground

There were reported comments from George Soros that selling sterling offered little value below 1.400 which triggered further coverings of short positions.

The underlying economic fears were still important and the IMF warned that Britain is facing the deepest recession of any big industrialised economy, the international monetary fund signaled yesterday that the British economy would shrink 2.8% this year. The sterling also drifted weaker again on Thursday morning while the Nationwide reported that house prices fell a further 1.3% in January to 16.6% annual decline.

Overall the GDP/USD traded with a low of 1.4128 and a high of 1.4374 before closing the day at 1.4240 in the New York session.

The Euro pushed to re-challenge resistance above 1.33 levels against the greenback yesterday, but again failed to sustain the advance and fell back towards the 132 levels ahead of the FOMC interest rate decision.

The German CPI fell 0.5 % in January to give annual inflations rate of 0.9%. The further inflation decline will maintain expectations that the ECB will have to cut interest rates in the coming months. Overall the EUR/USD traded with a low of 1.3104 and a high of 1.3328 before closing the day at 1.3160.

The USD was sold most the day as equities around the world rallied on news that the Obama Administration would be looking to create a bad bank to hold toxic assets. The Fed kept interest rates near zero on Wednesday after a two-day policy meeting, although it said it was prepared to buy long-term Treasury debt if that would help improve credit conditions.

The dollar slipped 0.4 percent to 89.86 yen retreating from a one-week high of 90.79 yen hit on trading platform EBS on Wednesday following the Fed's decision. The Japanese yen has been viewed as a safe-haven currency amid the global financial crisis, and it often fluctuates depending on perceived shifts in investors' tolerance for risk.

The rise in U.S. Treasury yields on the Fed's decision may have been positive for the dollar from the standpoint of interest rate differentials.