Sterling poised for further gains

Sterling has tackled the week positively thus far and remains steady against the euro and dollar, helped largely by strong manufacturing data which helped push the pound to a 13-month high against the dollar.

Risk appetite was quashed by a pullback in global stock markets among stubbornly high oil prices and continued unrest in Libya, but sterling remained supported.

Markets may struggle to hold on to the risk aversion view however with the strong manufacturing data in the UK and Europe playing its part. We’d expect the dollar to weaken against a basket of currencies over the coming days.

It wasn’t all good news for Sterling however as Bank of Enland Governor Mervyn King dented Uk interest rate expectations yesterday and stated that it would be self-defeating to raise interest rates as a gesture or a signal.

Market watchers are still hoping for a rate hike by the middle of this year to counter persistent inflation and King, bearing in mind that he is one of nine policy makers on the MPC may be outvoted if the majority vote for a rate hike before May.

The UK construction PMI for February is due at 09.30 today and economists are looking for a positive figure to further boost sterling.

Keep an eye on the ADP Employment figure due from the US at 13.15 which will give a good indication as to the outcome of Friday’s important Non-Farm Payrolls for February.