Sterling battles on despite setbacks

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It was a bad day for risk-appetite yesterday and a good one for gold, which some analysts believe could reach $1,800 an ounce. Sterling did pretty well, gaining ground across the board despite two major obstacles that were put in it's path.

Mid-morning Sterling suffered a setback after an increase in UK unemployment from 7.7% to 7.9%. This was followed by the Bank of England's monetary policy committee minutes from this months meeting which showed none of the members voted for an interest rate increase.

The combination of data cost Sterling a cent but investors' disappointment did not last. The employment data wasn't not out of step with developments elsewhere and the alteration to the MPC voting pattern was no more than a psychological blow; it made no difference to the overall interest rate outlook.

Eurozone CPI inflation, which was on target at 2.5%, and US factory gate prices, which accelerated with a 7.2% annual rise, had little impact on the markets. It was therefore left to French and German leaders to cause mayhem by proposing a transaction tax on banks that refuse to buy overpriced Eurozone sovereign debt. The reaction saw Eurozone bank shares drag down the rest of the market as investors considered the possibility that France and Germany could force the proposal through in as their price for holding the Euro system together.

Elsewhere, the Swiss National Bank came out with its latest measure to hold down the value of the Swiss Franc. Contrary to market expectations the SNB didn't peg the currency to the Euro but "decided to expand again significantly the supply of liquidity to the Swiss franc money market and to employ foreign exchange swaps". In other words, the interest rate on Swiss Francs is going from near-zero to even-nearer-zero and the SNB is simultaneously going to sell and buy the currency.

Among today's data, the most important ones will be UK retail sales, US inflation and US existing home sales. Expect more discussion about the lack of action in southern Europe and future of the Swiss franc.