Sterling under the spotlight

Sterling is expected to show some resilience over the coming year specifically against the euro however we may see it struggle against the Greenback.Sterling under the spotlightThe chief threat to the Pound revolves around the UK economy as all indications suggest the UK economy has contracted in the final quarter of the year.

Ominously, a weaker external environment taken together with the comparative resilience of Sterling has caused in a worsening trade deficit, which could eventually impose pressure on the Pound.

In the near term we will focus on inflation data today and Bank of England minutes tomorrow for guidance price rises concerns and the split if any within the MPC.

This alongside eagerly anticipated retail sales data and GDP on Friday will shape Sterling’s performance this week

There were some signs of progress over fiscal cliff negotiations admittedly at slow pace yesterday.

Talks between President Obama and House speaker Boehner seemed to go fairly well but the probabilities of an agreement by year end remain unlikely.

Meanwhile US equities rallied as risk measures improved, overlooking the weaker than expected reading for the December Empire manufacturing survey.

Overnight the Reserve Bank of Australia attributed a softening labour market as the main driver for its latest 0.25% interest rate cut.

The central bank added that resource-sector investment was close to a high as the inflation view allowed scope for easier policy to support demand.

It now looks likely that further rate cut will take place in February.

Today there is little else in terms of significant impact with highlights including a vote on the Italian 2013 budget, UK inflation data and an interest rate decision in Sweden. The overall tone is likely to continue to be constructive for risk assets.

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