The currency blog

Sterling has finished the week as it started in a positive tone; the pound has pushed through 1.60 against the USD and towards 1.12 against the Euro. The gains are largely due to the feeling that the Bank of England will end the Quantitative Easing programme in next months MPC meeting. The general sentiment is that UK GDP will come in positively at the end of this month and this will lean the Bank Of England to pull the plug on the life support for the UK economy. On top of this sterling has gained on the back of the latest opinion poll from the Sun which emphasizes an extended lead for the Conservatives after the failed coup to oust Brown. This is significant as it decreases the possibility of a hung parliament which would be sterling negative due to the lack of a majority to clearly define fiscal objectives. Expect more sentiment shifts before the Feb MPC meeting which will be significant; yesterday as expected there were no surprises in the MPC meeting for the UK with the interest rate and QE held.

In other news we have the non-farm payroll data later from the US. The key monthly feedback from the job sector is expected to show the first increase in payrolls for nearly 2 years and if so will provide a boost for the recovery hopes of the US economy. This should also give the USD a boost as traders turn to speculation of sustained recovery and rising interest rates in 2010.

The Yen remains in the spotlight as the market adjusts to the new finance minister Naoto Kan. Mr Kan is the polar opposite to the previous finance minister Hirohisa Fujii and favours a weaker yen.

Discuss on this on the Currency Exchange Forum