Pound remians weak

The British Pound came under some selling pressure yesterday as the advanced Q4 GDP reading disappointed with a weaker than expected reading. Economic activity in the UK expanded only 0.1% in the fourth quarter of 2009 versus projections of a 0.4% rise, with the annualised rate slipped 3.2% from the previous year versus forecasts for a 3.0% contraction.

The tepid pace of recovery in the UK, could threaten further downward action in the pound if once again the ratings agencies look to cut the UK`s debt rating.

Yesterday morning also saw the release of the German IFO business confidence survey with the headline reading increasing to 95.8 from a revised 94.6 the previous month and the gauge for future expectations advancing to 100.6 from 98.9 in December, marking the highest reading since July 2007.

The US Federal Reserve ends its two day monetary policy meeting later this evening which is expected to yield little in terms of a policy shift but comes as the market waits to see if Chairman Bernanke will be confirmed in his post for a second term. His current term expires this Sunday.

Earlier this morning, Australian CPI data came in ahead of expectations at +0.5% quarter on quarter (versus mean forecasts of +0.4%) or +2.1% year on year (forecast +1.3%). The market is now pricing in the certainty of a further 25bps interest rate hike at next week’s meeting by the Reserve Bank of Australia.