Sterling's Rise loses pace

The pound lost some ground against the broadly firmer euro yesterday as the single currency was buoyed by growing hopes that the European Central Bank policymakers will be able to navigate their way through the sovereign debt crisis.

Sterling also dropped from near 2 month highs against the dollar as investors took profit on long positions.

Rising inflation and the talk of an increase in interest rates have helped to underpin the pound, but sentiment was dented by data showing the number of Britons out of work rose by its most in eight months in the 3 months to November while wage growth remained in check.

Despite the limited market movement, the claimant count in the UK fell by an unexpected 4’100 in December, while the drop in the previous month was revised to 3’200 compared to the initial estimate of 1’200. This could be attributed to the seasonal work and Christmas demand.

This suggests some improvement in the UK labour market conditions with markets predicting a rise of 1’500. However, while the number signing on did fall other data show the numbers out of work rising.

Some analysts believe that the euro is supported across the board and has been the G10 currency for the past five days. This could lead to more strength from the euro, which may mean that the near €1.20 that we nearly achieved last week may now have passed.

Data released yesterday show that the US housing market is still struggling to recover from its downturn and remains a major obstacle to overall economic recovery.

Housing starts dropped to an annual rate of 529’000 units in December, their lowest level since late 2009 Markets will be looking to today’s US Data, which include weekly jobless claims, existing home sales and the Philly Fed index for further direction.

The Australian dollar remains strong with the floods and economic impact there of being dealt with well. GBP vs. AUS has risen to above $1.60 from the New Year highs of around $1.50, we are still subject to incredibly strong higher yielding currencies, with the Canadian Dollar, New Zealand Dollar, South African Rand and Australian Dollar all up against a basket of currencies. A pattern that looks set to continue.