Sterling falls versus dollar

21 Mar, 2009

Sterling fell against a broadly firmer dollar on Friday, but analysts said it could build on this weeks recovery against a US currency weighed down by the US Federal Reserves plan to buy government debt. Sterling has gained over 3 percent against the greenback this week and is on track for its best performance since early February, mainly due to the Feds move to effectively create oodles of more dollars.
"(The fall in sterling/dollar) is not particularly surprising because there have been aggressive moves earlier in the week," Paul Robinson, chief sterling strategist at Barclays Capital, said. "Now the market needs time to take a breath".
Against the single currency, the pound gained slightly, but it stayed not far off a seven-week low just shy of 95 pence per euro hit on Wednesday. The Fed shook markets on Wednesday with a decision to buy $300 billion of longer-term government debt, fanning concern that an expansion of its balance sheet beyond the current $2 trillion will lead to an increase in the supply of dollars.
By 1530 GMT, the pound fell 0.7 percent against dollar to $1.4411 after hitting a three-week high of $1.4596 on Thursday. The euro meanwhile fell 0.2 percent against the UK unit to 93.95 pence. Analysts believe, however, that the pounds falls against the dollar will be short-lived, with the US currency enjoying only a small and temporary reprieve after Thursdays hefty losses.
The greenback has fallen roughly 4.3 percent against a basket of currencies this week and is now heading for its biggest weekly decline since 1985. "What we are seeing is a trend of broad dollar weakness, a number of G10 currencies have strengthened, and sterling could be one of those beneficiaries," said Phyllis Papadavid, currency strategist at Societe Generale.
Sterling has been battered for months by a financial and economic crisis that has engulfed a UK economy heavily reliant on the banking and financial services sector. After dismal figures this week showing a record surge in UK unemployment and a CBI survey revealing that manufacturing orders fell at their fastest rate in 17 years, investors are now turning their attention to next weeks UK data releases.
Inflation figures for February are due for release Tuesday, followed by key retail sales numbers on Thursday and the final estimate of fourth quarter gross domestic product on Friday, alongside the current account balance.

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