Pounds to USD 19 Feb 2010

The unexpected decision by the FED to raise its discount rate produced some fireworks in the pounds to usd pair which ended yesterday’s trading session dramatically lower as it accelerated through our initial target of USD1.55 to finish close to USD1.54.  Not only was sterling propelled lower  by the effect of the US news on the discount rate but also by the truly appalling news on the UK deficit which saw  borrowing increase in January, when normally the govt would expect tax revenues to provide a surplus.  This clearly demonstrates the parlous state of the UK finances which are now approaching those of Greece with yields on UK gilts now above those of Spain & Italy!   Technically the outlook for sterling now remains firmly bearish and with the deep resistance now sitting above any recovery is likely to be short lived and we should expect to see cable re-test the USD1.50 region in due course.

The only item of fundamental news this morning for sterling has been the retail sales figures which came in much worse than expected at -1.2% against a forecast of -0.5% (analysts blaming last month’s snow for the fall!!)  Meantime as the markts continue to digest the FED decision expect prices to pause until this afternoon when the Core CPI and CPI data is released in the US, forecast at 0.2% & 0.3% respectively.

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Currency Market News :

Gilt yield rise above Italy & Spain

UK deficit third worst in world