Short covering lifts Sterling

Sterling rose against the dollar on Friday due to short covering after declining for continuous days.

According to data released on Thursday UK Retail sales fell 0.4 percent compared to an expected drop of 0.3 percent for the month but the annual figure came in at 4.6 percent compared to a forecast of 4.3.

The unchanged expectation of a rate cut even after the release of BOE minutes weighed on the cable. The Bank of England minutes showed two votes against easing policy this month. In its first three way split in two years the nine span Monetary Policy Committee had six votes for this month's 25 basis point cut to 5 percent one vote for a bigger 50 basis point move and two votes for unchanged rates.

Most of the data from UK are supporting the view of weakness in the economy. Weak UK house price data continues to put pressure on the cable. A UK house price measure fell to its lowest in 30 years which increased the worries about that sector and the economy. Weak CPI data also added to the pressure.

According to Royal Institution of Chartered Surveyors net balance of UK house prices fell to 78.5 in the three months to March its lowest since the survey began in January 1978.

Sterling had been under pressure against the dollar after the Bank of England cut rates by 25 basis points. The bank s decision affected the concerns on credit conditions in UK.

However BOE decided to limit cut in 25 basis points because of optimism about the economy after the latest batch of bank write downs.

The UK purchasing managers index of the services sector for March came in at a level of 52.1 below February's level of 54.0 according to the release by the Chartered Institute of Purchasing Supply.

Concerns about European exposure to the US sub prime mortgage crisis rspanained as Swiss banking giant UBS and the Deutsche Bank disclosed a combined $23 billion of write downs for the first quarter ahead of their scheduled first quarter earnings announcspanents.

Bank of England Governor Mervyn King had said that the central bank was facing the challenge of balancing the possibility of weaker growth due to the credit crunch with higher inflation pressures has been weighing on cable .

Last day in spot trading sterling closed at 1.9851 (1.9740) against the dollar after trading in the range 1.9888 1.9675.

Medium term outlook

Trading below 2.0000 is the sign of weakness. Supports are 1.9800 1.9600 1.9385 resistances are 2.0275 2.0400.

Last day DGBP traded in the range 198.20 196.09 and closed at 197.48. Sterling daily chart (spot)

TECHNICAL OUTLOOK (Intra day)

DGBP (June) Bullish above $ 197.58 bearish below $ 197.02