Sterling recovers slightly and currently stable as investor eye UK budget

The British Pound rose against the dollar on Tuesday, recovering from steep falls the previous day as investors bought the currency at cheaper levels, though caution ahead of Wednesday's annual budget capped gains. Sterling gains followed the rise in the euro as well as with other currencies perceived as higher risk, such as the Australian dollar, as they corrected falls the previous day when equity markets tumbled.
Wariness ahead of the budget when the government is expected to forecast the economy shrinking at its fastest pace in sixty years will probably shake the Sterling some-what today. "You're just seeing a bit of a bounce back up from the extreme sell off that happened yesterday," said Naeem Wahid, currency strategist at Bank of Scotland. The GBP/USD is currently trading at $1.4600 as of 8:30am, London Time.

The yen rose against most majors on speculation stress tests on the largest U.S. banks will show additional loan losses, boosting demand for the yen as a refuge from the global financial crisis. Japan’s currency also gained momentum after a government report showed a slump in the nation’s exports slowed in March, adding to signs the recession may have started to ease. "The market looks at a stage of deciding whether to go long in yen again or not, after being pretty much done with cutting yen-shorts," a trader at a Japanese bank said. The yen had been a favorite to sell against commodity currencies such as the Australian dollar as equity markets rose in recent weeks and optimism picked up that the global downturn was bottoming out. The USD/JPY is currently trading at 98.16 as of 8:43am, London Time.

The ECB is expected to cut interest rates to 1.0 percent from 1.25 percent in May but it is unclear whether it will follow the Federal Reserve and other central banks and create money via other means such as buying corporate or sovereign debt. ECB Governing Council member Axel Weber told the Financial Times in an interview that the central bank had marginal room for more rate cuts and the euro zone had very limited scope for buying government debt in secondary markets. The EUR/USD is currently trading at $1.2920 as of 8:55am, London Time.

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