The Sterling declines after RBS's losses and the BOE's QE is extended

The British pound dropped on Friday hitting a low against the Euro after losses at the Royal Bank of Scotland in the first half of 2009 underlined the weakness in the UK banking sector. An announcement by the Bank of England on Thursday that it will pump more funds into the banking system also kept the sterling under selling pressure, pulling it away from a 9 and a half month high against the greenback and snuffing out broad gains made earlier in the week. "It was disappointing," said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank in London. "Traders expected an 'in-the-black' headline number ... It will create an additional incentive to sell sterling into fresh short positions." The GBP/USD is currently trading at $1.6745 as of 10:30am, London Time.

A slowing in the pace of U.S job losses last month didn’t prevent the unemployment rate from climbing to a quarter century high, economists and traders forecast a report today will show. A jobless rate that is estimated to exceed 10 percent by early 2010, stagnant wages and falling home values mean a lack of consumer spending will curb an economic recovery. The Labor Department report is due out at 1:30pm, London Time. Predictions for the unemployment rate ranged from 9.2 percent to 9.8 percent, according to the survey. Most new jobs under President Barak Obama’s stimulus program will come only in 2010. Less than 10 percent of the $787 billion plan goes to job creation this year.

The European Central Bank took different decisions to central banks in the UK or United States because the economic circumstances in the euro zone were different, ECB President Jean-Claude Trichet said on Thursday."We didn't do the same because the situation was not the same, because the financing of the economy, the structure of the economy was not the same," he said, speaking on the BBC's News-night programme. "We all did what was appropriate in our own circumstances."Trichet also said the euro zone still faced a tough economic situation, although the pace of contraction is slowing. He said the ECB must stay alert. "Caution and prudence is certainly of the essence," he said. The EUR/USD is currently trading at $1.6735 as of 11:01am, London Time.

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