The Pound has broken through the all important 1.60 mark against the US Dollar and is trading at a new four-month high after the German Constitutional Court ruled in favour of ratifying the Euro zone’s proposed rescue fund.
Demand for Sterling against the Dollar was also aided as the markets expect the US Federal Reserve to announce a new round of monetary easing later today.
The Pound could make further gains against the Dollar if the Fed does indeed announce further Quantitative Easing, however it could suffer if the policymakers refrain from taking action.
"So much is priced in with the Fed easing, that if it does not deliver anything, we could see a dollar rally and sterling will come under pressure," said John Hardy, currency strategist at Saxo Bank.
"But chances of that happening are less and we expect the dollar to head lower. Having said that, cable will struggle to rise past those April highs of $1.63."
Against the Euro the Pound has dipped to a two-month low against the Euro as demand for the riskier single currency shot up.
The ‘Aussie’ is trading at a three-week high against the US Dollar due to the speculation that the Federal Reserve will signal further stimulus. The currency has benefitted from the demand for riskier currencies.
“The markets are seeing a good chance that the Fed will announce QE3 today,” Daisaku Ueno, a senior foreign-exchange and fixed-income strategist. “That’s lending support to risk currencies like the Aussie and kiwi.”
