Published: Mon, 09 Mar 2009 15:39:23 +0100

Sterling Dragged Lower across the Board as Financial Problems Grow

(CEP News) - Concerns over the banking sector and the global economy are helping to put major pressure on sterling.

Among G-10 currencies, sterling is the worst performer against the U.S. dollar. Following the open of the North American trading session, cable hit a session low at 1.3743.

Currency strategists said concerns over the financial sector are primarily responsible for the pound's underperformance. UK bank Lloyds has agreed to give over control of Britain's largest mortgage provider to the government in exchange for $260 billion pounds under the guarantee program. According to some media reports, the government could raise its stake in Lloyds to 77% from 43%.

The World Bank released a troubling report on Sunday highlighting more weakness for emerging markets. The report said 2009 is likely to produce the first economic contraction since World War II. The report also warned that the financial disruptions could overwhelm the abilities of institutions, such as the World Bank and the IMF, to provide a buffer.

EUR/GBP could be a better indicator of sterling weakness. The euro continues to make gains against sterling, with the cross trading at one-month highs above 0.91 GBP.

Technical strategists from Citigroup are watching EUR/GBP closely. They pointed out that since Jan. 30, 0.90 GBP has been a major resistance point. A close above 0.91 could point to more short-term strength for the euro.

Nicole Elliott, strategist from Mizuho said she is relatively neutral on EUR/GBP and sees gains capped at around 0.9200 GBP.

Euro/USD down 0.20 cents to 1.2632

USD/CAD up 1.20 cents to 1.2992

USD/Yen up 0.81 points to 99.08

GBP/USD down 2.87 cents to 1.3805

AUD/USD down 0.52 cents to 0.6353

Euro/Yen up 0.78 points to 125.14

Euro/GBP up 1.71 pence to 0.9150

GBP/CAD down 2.08 cents to 1.7933

CAD/Yen down 0.12 points to 76.26

Euro/CAD up 1.27 cents to 1.6410

The U.S. Dollar Index is up 0.49 points to 89.00

All data taken at 10:36 a.m. EDT

By Neils Christensen, neilsc@economicnews.ca, edited by Sarah Sussman, ssussman@economicnews.ca