Sterling rises against the Dollar

Sterling recovered against the broadly weak dollar yesterday after a Bank of England policymaker welcomed the bank's plan to free up market liquidity as a way to keep the BOE focused on inflation risks.

According to BOE Monetary Policy Committee member Tim Besley the initiative would allow the central bank to stay focused on using official rates to control inflation suggesting wariness of cutting rates significantly.

But weak UK house price data continues to put pressure on the cable. A UK house price measure fell to its lowest in 30 years which increased the worries about that sector and the economy. Weak CPI data also added to the pressure.

According to Royal Institution of Chartered Surveyors net balance of UK house prices fell to 78.5 in the three months to March its lowest since the survey began in January 1978.

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.

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

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 had 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 has been weighing on cable .

Last day in spot trading sterling closed at 1.9953 (1.9798) against the dollar after trading in the range 1.9999 1.9743.

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 199.24 196.80 and closed at 198.71. Sterling daily chart (spot)

TECHNICAL OUTLOOK (Intra day)

DGBP (June) Bullish above $ 198.67 bearish below $ 198.12