Sterling hits lofty 4-month highs vs US dollar, but resistance arises

The pound to US dollar exchange rate is currently trading 0.03 pct higher than seen at Friday's close at 1.5710.

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Richard Driver at CaxtonFX says the pound's advance against the US dollar appears to be running out of steam:

"Sterling is coming up against some resistance at these lofty 4-month highs. There is some significant news coming out of the UK this week but Wednesday evening’s Fed statement, press conference and economic projections will be the highlight of the week. The QE3 tapering debate has been the market’s No.1 concern for some time now and we could get some clarification this week. US data has broadly been on the firmer side of late so the dollar may yet get some help."

The US dollar made a modest recovery towards the end of last week after experiencing some poorer performance earlier on.

Reasonable increases were seen against the euro, whilst gains made against the sterling during the early afternoon were largely cancelled out by the end of trading in London.

The monthly US Producer Price Index, which reflects the change in price in finished goods and services, was higher than expected, encouraging notions of a slowing down in quantitative easing.

Conversely, consumer sentiment data was revealed to be worse than expected and may have held the US dollar back from making further gains.

Charles Purdy at Smart Currency Exchange says:

"Expect to see the dollar move considerably this week in response to upcoming events.

"Tomorrow sees the release of the monthly consumer price index, ahead of the release of a statement by the Federal Open Market Committee on Wednesday.

"The members will give their projections for economic performance over the next two years and more importantly they will detail their predictions for future interest rate alterations.

"Traders will be paying close attention as they look for anything that might hint towards a scaling back of the bond-buying scheme of the world's largest economy."