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GBP/USD eyes 1.70

The pound rediscovered its former glory yesterday but will it last? This morning we have tested the much feted 1.70 level but quickly retreated. We have witnessed a few false dawns in the past for the pound and the Bank Of England decision on Friday will be in the back of the mind for sterling bulls. On Thursday the Bank Of England may announce a further expansion on the quantitative easing programme by GBP25 billion which will be sterling negative. On the other hand they may decide to leave it be and this could help sterling push over the 1.70 level and advance against other major currencies such as the euro and the Yen. The pound has been boosted by improved economic data- in particular the UK manufacturing PMI which rose to 50.8 from 47.4 on June. This was well above expectations and a number above 50 denotes expansion in the sector- this is the first sign of expansion since March 2008. In addition to this economic data the results from HSBC and Barclays were a great comfort to the pound removing some of the fears surrounding the UK banking sector. More bank results this week from Lloyds and RBS; Northern Rock has reported a loss of GBP724.2 million for the first 6 months of 2009 and confirmed that 3.92% of its mortgage loans were over three months in arrears- this is worrying as it is well above the national average of 2.39%. However losses were expected and there are signs of optimism for the Rock with applications for new mortgages doubling in the second quarter of the year. In other news the Reserve Bank Of Australia (RBA) left interest rates unchanged and in their statement following they removed the line “there remains some scope for further easing of monetary policy” indicating that no further cuts will be on the table. The USD remains under pressure across the markets with EUR/USD hitting 1.44 and GBP/USD 1.70. The dollar index fell to its weakest level since mid December.

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