Currency news - Weak Sterling sentiment

Weak Sterling sentiment - 28-02-08

Sterling pushed to highs above 1.9950 against the dollar on Wednesday, but quickly retreated back through the 1.99 level and dipped to lows around 1.98 in New York. The UK currency was also under sustained pressure against the Euro with a retreat to beyond 0.7630 which represented a new record low.

The UK currency was undermined by a lack of confidence in the financial sector after disappointing results from HBOS and speculation over more serious difficulties within the banking sector, although there were no debt write-down announcements. In this context, the results from RBS groups provided some relief on Thursday.

Bank of England deputy Governor Gieve reported that financial markets have remained difficult in 2008, but that policy needs to be set for the economy as a whole. The remarks overall continue to suggest that the bank will look to cut interest rates slowly.

The UK currency should, therefore, find some support on yield grounds if the economy holds firm, but confidence will remain very fragile in the short term. Sterling edged slightly stronger in early Europe on Thursday after finding support below the 1.98 level against the dollar.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001

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