Global risk appetite had been whetted by strong earnings figures from US investment bank Goldman Sachs released on Monday, with sterling benefiting due to the UK economy’s perceived dependence on its banking sector.
The pound, viewed as a riskier currency than the dollar or yen, has tended to gain in tandem with stock markets and analysts at Commerzbank said that sterling should outperform in the currency markets as long as sentiment towards the financial sector continues to improve.
BNP Paribas however said that sterling’s robust performance against the dollar could be challenged if the forthcoming set of first quarter US corporate earnings delivers any shocks.
“Sterling will not be able to avoid the impact of any increase in asset market volatility over the coming week and hence caution with long positions is still required in the near-term,” BNP Paribas said.
“The pace of earnings releases picks up next week and still has the potential to deliver negative shocks. But the pessimism that has been built in to equity markets with many commentators now calling for new lows, is likely to cushion bearish news.”
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