·         Fears over Gilts weaken pound

·         Equity markets continue higher, dollar retreats

·         UK construction PMI shows sector still contracting albeit at a slower rate

·         Email research@worldfirst.com for an invite to tomorrow’s Bank of England and ECB webinar!

Further political fear did for sterling yesterday as it slipped against the US dollar and the euro.

Markets were, as we explained yesterday morning, worried over the potential for an indecisive election result leading to a dislocation in policy and a delay in dealing with the fiscal situation.

The news that Pimco, the world’s largest bond manager, was diversifying away from UK and US assets also saw sterling swoon through the session.

Our belief that the dollar would weaken in the first couple of days of the new year has proven correct as commodity currencies in particular strengthened against the greenback. AUD moved to a 3 week high of 0.9163, the NZD gained 0.2% and the Canadian dollar moved to a 10 week peak of 1.0383.

Data from the UK didn’t help sterling’s cause either as the PMI from the construction sector disappointed. While it was slightly higher than the previous month’s measure it did disappoint economists’ consensus. UK Consumer Confidence was also worse than expected as it fell by the most in 13 months as the public continue to worry over higher taxes and possible unemployment.

Hope for sterling is available today in the form of the PMI from the services sector. If retailers had the good Christmas that they say they did it will be evident in the figures and should stiffen sterling’s backbone. We do expect the US ISM figure to also be strong as well (15.00) while the ADP employment figure (13.15) should show us that Friday’s Non-Farms release  will be positive for the first time in 2 years.

You can also follow us live on Twitter at http://twitter.com/World_First

You Might Also Want To Read

• World First Foreign Exchange Podcast - 27 August 2009
• World First Foreign Exchange Podcast - 28 August 2009
• Parity Is A Long Way Away - World First’s Morning Update - 11th December 2008
• Will The Bank Of England Clip Sterling’s Wings? - World First’s Currency Exchange Morning Update - 13th May 2009
• World First’s Currency Exchange Morning Update - 1st July 2009
• World First in the press: Mail On Sunday 2 August 2009
• World First in the press: telegraph.co.uk 21 January 2010
• World First Foreign Exchange 27 January 2010: It’s Growth Jim, But Not As We Wanted It
• TARP vote due, Euro weakens - World First’s Morning FX Update -3rd October 2008
• World First Foreign Exchange 20 July 2009 - Earnings results disappoint as the IMF temporarily dent sterling’s prospects.
• World First’s Morning FX Update - 26th August 2008
• Bonuses worth 12% less than last year
• World First in the press: investmentinternational.com 20 January 2010
• Interest Rates Slashed As Recession Looms - World First’s Morning Update - 9th October 2008
• World First Foreign Exchange 15 December 2009: Market Close Podcast
• Inflation Soars as Recession Looms - World First’s Morning Update -15th October 2008
• World First Foreign Exchange 11 September 2009 Update: Bank Of England Hold Puts Sterling To Range Highs
• Shaping up for recovery - World First’s Sterling Update - 18th May 2009
• World First Foreign Exchange 18 February 2010: Dreadful Deficit Figures Hammer Sterling
• World First Foreign Exchange 08 February 2010: Market Close Podcast
• World First in the press - FT Weekend 25 October 2008
• World First’s Morning FX Update - 4th July 2008
• Fed Rate Cut Bad News for Dollar - World First’s Morning Update - 30th October 2008
• World First Foreign Exchange 25 August 2009 Update: Further Weakness For The Pound Forecast
• Auto makers get backhanded - World First Morning Update - 31st March 2009
• World First Foreign Exchange 27 October 2009 Update: Risk Helps Dollar Strengthen
• World First in the press: Metro 28 May
• Markets wait for Senate Vote - World First’s Morning FX Update - 1st October 2008
• World First: A sterling fall in properties abroad
• World First in: BASC Magazine October 2009 edition
• Sterling Higher On IP, Japanese GDP Helps Risk Profile - World First’s Currency Exchange Morning Update - 11th June 2009
• Improved US Consumer Confidence Helps GBP & EM Currencies - World First’s Currency Exchange Morning Update - 29th April 2009
• World First Foreign Exchange - 13th July 2009 - Update Chinese Debt Auction Fails Causing Risk Unwind
• World First NZD/AUD Weekly Update - 1st September
• World First Currency Exchange Podcast - 21 September 2009
• World First’s Morning FX Update - 1st September 2008
• World First Foreign Exchange 23 October 2009 Update: Eyes Down For GDP
• Mr Economy? The Doctor will see you now
• World First Foreign Exchange 20 November 2009 Update: Pound Idles Lower
• Sterling slips as risk appetite moderates, despite bullish services PMI - World First Morning Update - 4th June 2009
• Sterling Consolidates At Levels - World First’s Morning Update - 23rd January 2009
• Sterling Moves To 7 Year Lows Against Dollar - World First’s Morning Update - 20th January 2009
• World First NZD/AUD Weekly Update - 22nd September 2008
• World First NZD/AUD Weekly Update - 30th June
• Risk Helps GBP Higher Against EUR - World First’s Morning Update - 5th January 2008
• World First Foreign Exchange 3 September 2009 Update: ADP Points To Volatile NFP, Sterling Gains
• World First Foreign Exchange 10 November 2009 Update: Bulls Fire Risk Higher, Fitch Warns UK on Credit Rating
• World First Foreign Exchange Sterling Update - 17 August 2009 - The Language of Policy
• World First Foreign Exchange 07 January 2010 Update: Sterling Sick of Politicians
• World First in the press: Sunday Times 10 May 2009