After dropping to a low of 2.0257 at the beginning of the US trading session, the British pound staged a very impressive intraday reversal to end the US trading session well above 2.0350.
The move appears to be almost completely dollar driven since it came hours after the release of the UK trade balance. Although the deficit narrowed in the month of August, the improvement was less than the market expected. UK Chancellor Darling maintained the government?s 2007 growth forecast of 3 percent, but revised down the growth forecast for 2008 from 2.5-3 percent to 2-2.5 percent. Leading indicators are due for release tomorrow along with the RICS house price index. Both are expected to deteriorate given the problems in the UK financial market and the strain of a strong currency and high interest rates.
Written by Kathy Lien, Chief Currency Strategist for DailyFX.com