Sterling drops back as sentiment is still uncertain as investors await economic

The British pound fell against the dollar on Monday as appetite for risk waned and overall sentiment towards the pound remained uncertain. The greenback had come under broad selling pressure after above forecast U.S. payrolls data Friday prompted demand for riskier assets. The prospect of a hung UK parliament after an expected general election in May has been weighing on sterling in recent weeks, as opinion polls showed the opposition Conservative party's lead narrowing. A hung parliament is seen struggling to deal effectively with Britain's ballooning fiscal deficit. Latest polls from the weekend showed a slight reversal in the Conservatives' favor, but analysts said it would likely still be a closely fought election. "The outlook for the UK economy is still very challenging indeed. There's still a chance the BoE will restart their asset purchases, which would be sterling negative" said RBS currency strategist Paul Robson. The GBP/USD is currently trading at $1.5070 as of 20:10pm, GMT, with a bullish trend.

The greenback has room for “substantial” gains against the yen this year, according to Royal Bank of Scotland Group Plc. “A Japanese government effort that appears aimed at averting yen strength will encourage retail-capital outflow from Japan,” Greg Gibbs, a currency strategist in Sydney, wrote today in an investor note. “A robust recovery in the U.S. will encourage thoughts of rate hikes in the U.S. later this year, and encourage global investors to use other currencies, such as the yen, to fund carry trades. We continue to see substantial upside yet for the dollar-yen over this year.” The USD/JPY is currently trading at 90.30 as of 20:43pm, GMT, with a bullish trend.

The euro’s weak response to a “resolution” of the Greek crisis heralds further weakness for the European currency against the dollar, according to Standard Bank Plc. “Despite assurances from the European Union that it stands ready to aid Greece, the euro has hardly recovered from the $1.3430 lows we saw just before the latest Greek package,” Steve Barrow, head of Group of 10 currency strategy at Standard Bank in London, wrote in a research report today. “To call this a dead-cat bounce would be a good description, as long as we left out the word ‘bounce.’” The euro will fall to $1.25 “over the next few months,” he said. The EUR/USD is currently trading at $1.3632 as of 21:05pm, GMT, with a bearish trend.

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