The dollar weakened yesterday as traders began investing in riskier higher yielding currencies following positive US housing data. There was limited trading in anticipation of the interest rate decisions from the Bank of England and the European Central Bank tomorrow. The ECB is likely to maintain interest rates at 2%, whilst the Bank of England is expected to cut further by up to 100 basis points. Usually a currency is weakened by interest rate cuts, but there is speculation that the pound may instead strengthen on the back of any cuts as the move points to a positive economic stimulus.
The pound also strengthened yesterday following a report on the UK construction sector, which showed that it rose to 34.5 in January from the 12 year low of 29.3 set in December.
There are several significant announcements taking place in the US today including ADP Employment Change and MBA Mortgage Applications. In the UK, the BRC Shop Price Index will be released at 10.00 GMT.
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