Pound rises due to News Barclays

01-26-2009 13:12

Positive news from Barclays has boosted the Pound to a 1.3840 level and has increased home loans. The British bank declared a £8 billion depreciation and also announced that it doesn’t need to use funds from the government. The 2008 profits enable the British bank to face the storm, which declined its shares by more than 30%. The release of the European’s sole economic indicator, BBA (British Bankers' Association) loans from home purchase, supported the pound further. The housing sector could be stabilizing due to the increase of home loans from 17,300 last November to the present level of 22,051.

After the current Royal Bank of Scotland struggles the positive Barclays news is a stroke of luck for traders because it may indicate that not the whole banking system needs a rescue plan. It’s possible that the pound will find more support as a result of the Bank of England pausing their easing policy just as the ECB probably will decide at their next meeting. UK retail sales have increased by 2.4% and this could be a first sign that the economy starts to recover. The economy continues to decline and the banking sector still faces many problems and that’s why market participants strongly expect that the central bank will decline rates once more which may cut down any upside potential.

The European currency would reach a 1.2988 level ahead of a struggle due to the fact that weaker rate prospects for the ECB has increased support. The psychological level of 1.3000 had supplied support and seems to have created a resistance which may cause the Euro trading lower from here. It is possible that support for the single currency will increase as a result of tomorrow’s German IFO proving a minor progress while the dollar provides the most important event risk.

The almost empty worldwide economic calendar contains only few major event risks like today’s existing home sales report. For that reason, the report may stimulate important volatility while it probably sets a new record low of 4.40 million. A further decline in the housing market could result in more worry’s about banks suffering additional losses and needing extra help from the government. It is likely that the new government will create a rescue plan for the banking sector while political opposition may delay its implementation. For that reason traders may continue to be careful which could result in support for the dollar today.