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The pound is looking to round off the week in a much better position than many market analysts thought following from the contraction in the UK economy

GBP STERLING

The pound is looking to round off the week in a much better position than many market analysts thought following from the contraction in the UK economy by 0.5% according to last week’s worrying GDP data.

Activity in Britain’s dominant services sector expanded at its fastest pace in eight months in January as business recovered after December’s snow disruption.

Yesterday’s purchasing managers’ survey from Markit & CIPS also showed a record jump in input cost inflation in the services sector , which may cause concern for Bank of England policymakers who hold their rate decision meeting next Thursday.

Sterling fell away a little from the 3 month high against the dollar, bouncing off the key resistance level of 1.6282, but staying well over the $1.60 price that has proved difficult to break during sterling’s turbulent trading pattern since the turn of the year.

Versus the euro however, the pound clung to comments that drove the euro down, as Jean Claude Trichet dampened expectations for a rate hike in the euro zone. .

THE EURO

The single currency fell across the board yesterday and has started Friday’s trading session with much the same bad news after European Central Bank President Jean-Claude Trichet threw cold water on expectations that euro zone interest rates would rise in the near future.

Trichet spoke after the ECB’s decision to keep rates at a record low 1% and stated that inflationary expectations remain “firmly anchored” and inflationary pressures over the medium to long term “should remain contained”.

Investors were clearly disappointed, as they were expecting a more hawkish statement after recent inflation data came in above forecast. It was thought that the ECB would lift interest rates sooner that the Federal Reserve and this had strengthened the euro. Yesterday’s news led investors to dump the euro and buy the dollar as the game of cat and mouse gathers pace.

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