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Bullish BoE Inflation Report Supports Sterling Strength

Sterling is closing out the week on a high and this time it is not relying on a faltering euro. We have even seen some losses clawed back against the rampant buck as cable recovers to hit a six week high with the $1.54 handle being tested. A bullish press conference by BoE Governor Mark Carney outlined the UK’s latest inflation report and general state of the UK economy, which he talked up. There was some talk that the BoE are ready to help the UK economy should more stimulus be needed, and a rate cut is still possible. However, it seems the market has picked up on the view that there is more of a chance now that a rate rise could be back on the cards at the end of this year. Market analysts had previously wiped out that possibility until Spring next year. This gave the pound a welcome boost which saw GBP/EUR his its highest level not seen since January 2008. A rise in risk appetite also brought the pound back up against the U.S. dollar. Sterling also saw impressive gains made against the commodity currencies, especially the Aussie dollar with the AUD$2.00 handle being breached yesterday.

The European Central Bank isn’t ready to withdraw a lifeline to Greece’s crippled banking sector, boosting hopes that Greece and its creditors will negotiate an end to a debt standoff. This helped stem the losses seen in the single currency which saw a seven year low against the pound and the $1.13 handle breached against the dollar. News reports on Thursday said the ECB’s Governing Council agreed to raise the limit on the amount of funding Greek banks can tap through a program known as emergency liquidity assistance, or ELA, by 5 billion euros ($5.7 billion), pushing the ceiling to €65 billion. The news boosted the euro EURUSD, +0.04%  , which traded at its highest level versus the dollar in nearly a week. Analysts said the development merely underscored the idea that European officials still see room to resolve the debt standoff with Greece’s new government. Greece is resisting calls to extend the terms of its current bailout program, in line with the new government’s anti-austerity campaign pledges. European officials are resisting Greece’s call for a bridge loan that would provide time to work out details of a new program. Greece’s current program expires on Feb. 28, and Athens is seen running out of money within weeks.

The dollar saw an unexpected fall yesterday as the week looks set to be closed out on a positive note regarding the Ukraine and Greek issues. Risk appetite improved over the last 24 hours as a deal seems to have been reached with the conflict in the Eastern Ukraine, pushing investors back into more riskier assets and selling the dollar. There was also some positive news with regards to Greece in that the ECB seem to be handing the Greeks a lifeline, albeit for now anyway with regards to the funding issue and debt repayments. This all led to a sell off which was then confounded by weaker than expected US retail sales figures, which came in at -0.8% from an expected number of -0.4%. This move against the dollar does feel temporally, so if you are holding out for the dollar to fall more, it may be worthwhile selling in the dips, a move back into the safety of the buck is not far away.

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