Sterling gains against the Euro on fiscal trouble in the E.U

Sterling gained against the euro on Thursday, as gloomy economic data and warnings about the euro zone's fiscal status kept pressure on the single currency as markets awaited the European Central Bank's rate decision. The UK economy is not faring any better, as the country has slipped into recession for the first time since 1992. But much of the negative outlook has already been factored into the pound, which fell some 26 percent against the dollar last year. The ECB is expected to lower interest rates for the fourth month running as dismal data raise the chances of a recession deepening in the euro area. "The risk is that the ECB eases to a lesser extent than expected, and that would most likely be a positive event for the euro," said David Powell, strategist at Bank of America. The GBP/USD is currently trading at 0.8920 as of 8:40am, GMT.

The yen fell against the euro on speculation stock gains and measures to stabilize the U.S. financial system will encourage investors to buy higher-yielding assets funded in Japan’s currency. The yen also weakened versus the Australian and New Zealand dollars as the U.S. government agreed to provide $138 billion of funds and guarantees to Bank of America Corp. and the U.S. Senate released $350 billion to rescue troubled banks. Asian shares and U.S. stock futures extended gains on easing concern that losses at financial institutions will increase. “A lot of people, myself included, are trying to buy the euro against the yen,” said Motonari Ogawa, director of currency trading in Tokyo at Barclays Capital Inc., the fourth- largest U.K. lender. “Stocks are on a firm footing, and that increases appetite for risk.” The USD/JPY is currently trading at 8:55am, GMT.

Bank of America Corp., the largest U.S. bank by assets, received a $138 billion emergency lifeline from the government to support its acquisition of Merrill Lynch & Co. and prevent the global financial crisis from deepening. The U.S. government agreed to invest $20 billion more in Bank of America and guarantee $118 billion of assets “as part of its commitment to support financial-market stability,” the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement shortly after midnight in Washington. The bailout may increase pressure on Chief Executive Officer Kenneth D. Lewis, who reports fourth-quarter results today, to defend his decision to buy the ailing Merrill.

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