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Sterling has started with a climb against the Scandanavian currencies along with the Euro

GBP

Sterling struggled against all of the actively traded pairs yesterday following a data release which showed a worse than expected output for UK Industrial production for the month of February. The figure showed the biggest drop in 18 months stifling sentiment that the UK manufacturing sector will be a strong growth industry and will become the backbone of the UK recovery. The Office for National Statistics (ONS) stated that industrial production fell 1.2% month-on-month and annually it increased by just 2.4% down from 4.2% in January. The market attributes the reason for the drop as predominantly a result of reduced oil and gas due to ongoing maintenance work.

A big day in terms of data sees The Bank of England (BoE) making a policy announcement at midday although it is widely accepted that interest rates will remain on hold at a record low 0.5%. It is thought the central bank are opting to wait for the outcome of first quarter GDP data in the hope that there is a recovery from the -0.5% slump previously reported in quarter four.

Sterling remains generally under pressure following the poor manufacturing data with the only silver lining being data from the National Institute for Economic and Social Research (NIESR) which estimated that the UK economy grew by 0.7% in the first quarter of 2011.

Sterling has started with a climb against the Scandinavian currencies along with the Euro but any gains could be short lived when the European Central Bank (ECB) increases rates this afternoon.

EUR

The ECB rate announcement at 12.45 is expected to confirm that a rate hike of 0.25% will come into effect making for the first of its kind since July 2008. More important will be the tone of ECB president Trichet’s comments in the press conference immediately following the announcement. If the phrases ‘vigilant to price pressures’ and ‘the importance of maintaining price stability’ are mentioned then a clear message is sent that further rate hikes will follow. The ECB are much more vigilant than the BoE to keep a firm grip on inflationary pressures and as a result the current spell of euro zone strength is likely to continue.

The market shrugged off news that Portugal will follow Greece and Ireland in seeking an EU rescue package to the tune of €90bn reinforcing opinion that the euro zone is better placed to absorb such announcements without affecting the strength of the single currency.

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