Sterling continues to be buoyed, especially against the Euro making new 4 month highs, after CPI data came in well above expectations at 2.9%. It now seems pretty much certain that the governor of the Bank of England, Mervyn King, will have to write to the Chancellor next month, especially with the re-imposition of the VAT rate, to explain why CPI rose more by than 1 % above its target level in January. It also means that there is little chance of further quantitative easing.

Exchange rates have not been favorable for the US dollar in the early part of the week as the greenback has been hit again following disappointing news of late on the job and housing sector fronts.

As we mentioned early on Friday in our post before the NFP data, the Euro and Pound were holding critical support areas. After a release of data that fell way below expectations on payrolls it seems it’s time to punish the US Dollar once again.

AM trading in Europe has seen the British Pound and Euro hold the support areas of the last week as we move into NFP day. The Euro is currently holding above 1.4280 and is looking likely to make a move up today towards US open. The Pound making stronger moves from a base of 1.5920 area and currently trying to push above the round number of 1.6.

The US dollar continued to remain buoyant ahead of this afternoon’s much anticipated payroll numbers, after some conflicting views on the greenback from senior Fed officials.

The Japanese yen continued to remain weak in Asia as demand for riskier investments continued to gain traction on hopes for continued economic recovery. Combined with the resignation of finance minister Fuji on health grounds, an advocate of a stronger yen, the currency weakened particularly against its higher yielding counterparts.

The predominant theme of 2009 was of US dollar weakness, and this re-asserted itself overnight, after continued positive economic data re-established demand for riskier assets, and after Fed official Duke, reiterated that interest rates are expected to remain ultra low for some time to come.