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Monday, February 26, 2007

Sterling Outlook (26th February 2007)

The GBP/USD opened in Asia around 1.9635/40 after breaking higher on Friday on broad USD weakness and hawkish comments from the MPC's Sentence. The GBP/USD moved up to 1.9654 when the USD/JPY led the USD broadly lower, but slipped back down again when EUR/GBP buying flows weighed on the GBP/USD. The GBP/USD eased 1.9625 at one stage before settling between 1.9630/40 for the balance of the quiet session.

There were decent EUR/GBP flows going through in Asia today with the cross opening around 0.6705 and moving as high as 0.6720 at one stage. The weekend press in the UK threw out a few potential GBP-negatives including the leaked intelligence report saying that Britain was more exposed to home-grown, Al Qaeda terrorism than at any time since Sept 11.

UK Chancellor Brown was quoted as saying that UK inflation was set to fall and that may have sparked some of the EUR/GBP buying. There isn't any data out of the US or the UK later today so the market will focus on US yields, commodity prices and the performance of the US stock market after it wobbled on growing concerns over the mortgage sector.

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