British pound rises strongly on Barclays profit forecast

The British pound rallied to 1.3995 on Monday due to active cross buying in sterling together with short-covering as U.K. bank Barclays said it would report a 2008 pretax profit and indicated it would not need new funding although cable fell initially to 1.3548 after Bank of England Monetary Policy Committee member David Blanchflower was quoted on Sunday that U.K. interest rates still had a way to go if they were to follow the United States.

U.S. existing home sales unexpectedly increased 6.5% in December to 4.74 million, well above the expectation of a 2% decrease to 4.40 million. U.S. leading indicators also unexpectedly rose by 0.3%, from a forecast of a drop of 0.3%.

The single currency rallied against the U.S. dollar from 1.2862 to 1.3209 Yves Mersch, an ECB governing council member, said that he did not want to see rates fall much below the current 2%. The release of better-than-expected U.S. economic data also gave support to the euro, diminishing safe-haven demand on the greenback.

The greenback weakened against the Japanese yen from 88.27 to 89.70. Euro and sterling rallied versus the Japanese unit from 113.75 to 117.90 and from 119.73 to 125.09 respectively.

Earlier in the day, a Group of 20 official said the International Monetary Fund will slash its 2009 world growth forecast to 0.5% from 2.2%. The single currency rallied against Swiss franc to 1.5091 on speculation the central bank will step into the foreign-exchange market to limit the currency’s gains.

Tuesday will see the release of Japan’s CSPI, German import price and Ifo index, eurozone current account, U.K. CBI distribution trade and U.S. consumer confidence. The Fed will begin a two-day policy meeting on Tuesday and investors will watch the central bank's policy statement for pointers on what assets the Fed may purchase to ease credit strains as U.S. interest rates are currently near zero.