Sterling recovers on Inflation data

Sterling gained against the dollar on Monday as British producer price inflation surged taking some heat out of Bank of England interest rate cut expectations.

Sterling gained against the dollar on Monday as British producer price inflation surged taking some heat out of Bank of England interest rate cut expectations.

But worry about the rate view limited the gain on cable in light of ECB s decision to keep rate steady. Sterling had been under pressure against the dollar after the Bank of England cut rates by 25 basis points. The bank s decision affected the concerns on credit conditions in UK.

BOE decided to limit cut in 25 basis points because of optimism about the economy after the latest batch of bank write downs.

A Bank of England official on last week had downplayed the possibilities of a steep rate cut as the central bank tries to control rising inflation.

The UK purchasing managers index of the services sector for March came in at a level of 52.1 below February's level of 54.0 according to the release by the Chartered Institute of Purchasing Supply.

Concerns about European exposure to the US sub prime mortgage crisis remained as Swiss banking giant UBS and the Deutsche Bank disclosed a combined $23 billion of write downs for the first quarter ahead of their scheduled first quarter earnings announcements.

Bank of England Governor Mervyn King said that the central bank was facing the challenge of balancing the possibility of weaker growth due to the credit crunch with higher inflation pressures.

Britain risks the prospect of a US style crash in its house prices as the credit crunch in the financial markets takes its toll of a heavily over valued property market the International Monetary Fund warned on Sunday.

Last day in spot trading sterling closed at 1.9787 (1.9704) against the dollar after trading in the range 1.9652 1.9787.

Medium term outlook

Trading below 2.0000 is the sign of weakness. Supports are 1.9800 1.9600 1.9385 resistances are 2.0275 2.0400.

Last day DGBP traded in the range 197.90 196.05 and closed at 196.61.Sterling daily chart (spot)

TECHNICAL OUTLOOK (Intra day)

DGBP (June) Bullish above $ 197.07 bearish below $ 196.52

DATA TO WATCH

2008 April 15

Dubai time = GMT + 4 hrs