Sterling firms vs dlr after hefty losses; CPI eyed
Sterling firmed against the dollar on Tuesday, regaining poise after posting its biggest one-day percentage loss on a trade-weighted basis since September 1992 the previous day.
The pound's outlook remained shaky as investors fretted about the wider impact of the global credit crunch and UK bank exposure to the troubled U.S. subprime mortgage market after Bear Stearns came close to collapse.
"Banking stocks (are) likely to get revised lower from here. This means that people who have their personal wealth locked up in equities are now starting to be seriously impacted," Westpac currency strategist Geoff Kendrick said. "That should in theory have a second round impact to the housing market ... but we have seen a fair chunk of that already."
While the U.S. has cut interest rates rapidly to 3.0 percent so far in an attempt to stave off recession, the Bank of England is trying to balance slowing economic growth with rising inflation. UK rates stand at 5.25 percent.
On a trade-weighted basis the pound stood at 93.50, having hit a low of 93.40 on Monday. This marked its biggest one day percentage fall since sterling was forced out of the European Exchange Rate Mechanism.
Sterling was up 0.4 percent on the day at $2.0063, while the euro was down 0.1 percent at 78.57 pence, having hit a record high on Monday at 79.12 -- fuelled by the euro hitting record highs above $1.59 versus a broadly ailing dollar.
Inflation tops Tuesday's UK data agenda, with February Consumer Price Index data due at 0930 GMT. The consensus is for the CPI rate to have risen to 2.5 percent year-on-year last month, which would be highest since last May.
But RBC Capital Markets said this is widely priced in and incorporated into BoE's own forecasts. "Given that high current inflation is the only factor stopping the BoE cutting more aggressively, we would expect to see a larger sterling reaction to soft numbers," the bank said in a note to clients.
Sourced by Reuters.