httpvh://www.youtube.com/watch?v=dkosF1tROrY

Sterling set about breaking out of the 3 1/2 year downtrend it has been in versus the US dollar yesterday with the greenback weak on interest rate differentials and the belief that today’s testimony by Fed Chair Ben Bernanke to Congress on the US economy will be downbeat.

The pair reached a high of 1.6277 before inching lower and breaking that line will not be a walk in the park. the longer the trend, the harder it is to break and sterling will have to battle to see regular price prints north of 1.63. Still we believe it can be done and maybe some of this week’s PMI data from the UK, Bernanke’s testimony or Friday’s Non-Farm release could be the catalyst.

If Bernanke’s testimony is negative about the US economy it, apart from Friday’s poor GDP release, flies in the face of recent data. Regional releases such as yesterday’s bullish Chicago PMI have been hitting their straps and with that strength likely to flow through to the nationwide ISMs (due today and Thursday) a dollar rebound is possible. Ben holds the key though.

Overnight the first of this week’s central bank meetings took place with the Reserve Bank of Australia holding rates at 4.75%. This was always likely as the clean up and rebuild post the floods continue. AUD has weakened on the news.

Today’s manufacturing data from the UK should see the positive trend in place since October continue. While we should see a dip from the record figure posted in January anywhere above the 60.0 level should see sterling rocket onwards.

Latest exchange rates at time of writing