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Sterling likely to trade with risks skewed against the dollar

US Dollar:

The dollar is little changed against the euro and pound Thursday after bouncing slightly from a one year high on the euro and 1 month high on the pound as the Federal Reserve committed to keeping interest rates low, sparking a rally in riskier assets that benefit from a cheaper dollar. The FOMC statement was very neutral and very much as expected, keeping emergency level funding in place, even as the economy inches towards recovery. The Federal Reserve said the US economy continues to strengthen but that slack left over from the recession is large enough to warrant near-zero interest rates for an extended period. Now that the Fed's statement is out of the way, currency investors will again focus squarely on the sovereign debt crises that threatens to engulf the eurozone.

Data: 13.30: Unemployment Claims 442k from 456k, 15.30: Natural gas Storage. Speakers 17.30: Treasury Sec Geithner    

Sterling saw a mixed day yesterday as it posted a 1 month low against a rallying dollar to hit $1.5126 and traded sideways against the battered euro. Cable continued its decline yesterday as players waited for the FOMC interest rate decision which came in unchanged as expected. The pound will remain under pressure right through the UK election as investors wait to find out how the UK will sort out its own debt  issues, worryingly high and not to dissimilar to the levels causing chaos in some European countries. The pound is likely to trade with risks skewed lower against the dollar. The pair is undermined by continued concerns over the weak UK fiscal situation, plus the prospect of a hung UK parliament after the May 6 general elections. The pound—euro pair is likely to consolidate in a narrow range. In the run up to the UK general election, demand for gilts has re¬mained strong, helped by the unfolding Greek debt crises, but it is also a sign that the market has priced in the chance of a hung parliament, with risks to UK debt easing as evidenced by gilt swap spreads.

Data already out: Nationwide House Prices surge by 1% in April from March.


What a beast the euro had yesterday—no one had a worse day at the office than the single currency, well maybe Gordon Brown did. The latest sticking point came when Standard & Poor's downgraded Spain one notch to double A from double A-plus and kept a negative outlook. The ratings agency also said Spain would likely see an extended period of subdued economic growth and cautioned that it could face another downgrade. Be¬lieve it or not, Moody’s and Fitch still have Spain as a triple-A credit. We don’t think that can last, and we see multiple downgrades ahead fro Spain. Spain is the 800-pound gorilla in the room. Greece and Portugal are small countries, but Spain is about five times their size with regards to GDP. It was just a matter of time before the problems were uncovered in the eurozone periphery, especially as the ECB has drained some of the emer¬gency cash that flooded the system in the wake of the financial crises. On the data front, Germany releases unemployment rate and eurozone monetary developments at 09.00, while the eurozone business climate and economic sentiment indicator will be released at 10.00.

Data 08.55: German Unemployment Change –11k from –31k. Speakers 12.30: ECB President Trichet.


• Fears of a fresh banking crises stalked the markets today as the risk of Greece defaulting on its debt repayments raised concerns about the exposure of major banks to indebted countries in Europe. As analysts estimated that Brit¬ain's banks have a combined exposure of £100bn to Greece, Portugal and Spain, the three countries causing most concern on the financial markets—the FSA was closely watching the markets and assessing exposures to the vulner¬able countries.


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GBP/USD 1.520
GBP/EUR 1.1515
EUR/USD 1.3206
GBP/JPY 142.96
GBP/AUD 1.419
GBP/NZD 2.1147
GBP/ZAR 11.2754
GBP/CHF 1.6508
GBP/CAD 1.5335
GBP/SGD 2.0871
GBP/THB 49.05
GBP/HKD 11.8012 red-down; blue-up (snap shot)

These rates are for indication purposes only.

For more information or to get the latest spot rates contact:

John Paul Georgiou
Senior Foreign Exchange Broker
+44 (0)20 7959 6851