Of DOW JONES NEWSWIRES
TORONTO (Dow Jones)--The pound has gained on expectations of positive merger-and-acquisition flows Monday morning while other currencies are confined to narrow ranges because of the Martin Luther King Jr. Day holiday in the U.S.
The dollar was mixed against other currencies, little changed against the euro and lower against the Australian and Canadian dollars.
Expectations that Kraft Foods Inc. (KFT) will raise its bid for Cadbury PLC (CBY, CBRY.LN) as well as news that France's GDF Suez SA (GSZ.FR) has made a takeover approach to the U.K.'s International Power PLC (IPRPY, IPR.LN) have encouraged hopes of friendly merger and acquisition flows for the pound.
"For sterling, given that it's a low-liquidity environment, the M&A news was enough to trigger some buying interest," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.
The pound reached a daily high of $1.6379, also its highest level since Dec. 16, according to EBS via CQG.
Currency strategists at TD Securities in Toronto said the pound suddenly seems to have become a "market darling" again, though they remain a little cautious on broader prospects, considering the looming general election.
Some of the pound's advance was also attributable to weakness in the euro as that currency continued to struggle with debt problems in Greece, Strauss said. "The initial shock impact has passed, but still the concern remains," he said.
Monday morning, the euro was at $1.4372 from $1.4376, up from a low at $1.4335, and at Y130.42 from Y130.54 late Friday. The dollar was at Y90.74 from Y90.82. The dollar was also at CHF1.0260 from CHF1.0269, while the pound was at $1.6311 from $1.6255.
There was little sign of any resolution to Greece's budgetary problems over the weekend. Apart from fear that Greece will default on its debt, there is concern that other euro-zone members could now face further credit rating downgrades.
Most currencies are likely to remain in their recent ranges in the light trading resulting from the U.S. holiday, said RBC's Strauss.
One exception is the dollar/yen pair, which is nearing the bottom of its recent trading range at Y90.60. "If the range breaks, we could see some renewed downward momentum in dollar/yen," he said.
Later in the week, a slew of fourth-quarter earnings from U.S. banks as well as major data releases from China will be important in determining overall market sentiment.
"Bank earnings will be a key focus, with Citigroup, Morgan Stanley, Bank of America, Wells Fargo and Goldman Sachs all set to report this week. Judging by the lackluster reaction to stronger-than-forecast earnings from Intel and JP Morgan Chase (last week), markets may be looking for something more to drive them forward," said Mitul Kotecha, head of global foreign exchange strategy with Calyon in Hong Kong.
Hopes for the global recovery could be lifted by Chinese data, which is forecast to show continued strong growth as well as a possible rise in inflation.
Kotecha suggested this could well lead to a rise in risk appetite later in the week. "Although debt concerns are unlikely to dissipate quickly, especially given Greece's inability to convince markets of its plans to cut its burgeoning budget deficit, the 'risk on' tone is likely to have a stronger hand later in the week, driven in large part by strong Chinese data," Kotecha added.
The pound also got a boost from news that U.K. house price increases are starting to accelerate. According to the latest Rightmove survey, prices rose by 4.1% on the year this month, the largest annual increase since March 2008.
Canada Morning
The Canadian dollar is modestly higher as it rebounds somewhat from a selloff on Friday.
Monday morning, the U.S. dollar was trading at C$1.0261 from C$1.0302 late Friday.
Some of the recent movement in the pair have been driven by technical factors, said RBC's Strauss. "The global backdrop is looking fairly decent for the Canadian dollar," he said, citing gains in oil and gold as among the positives for the currency.
TD Securities said the early focus for the Canadian dollar this week falls squarely on Tuesday's Bank of Canada rate decision. "Some speculation that the meeting could see an early departure from the central bank's pre-commitment to keep policy on hold through H2 is wide of the mark, we think," TD said.
The bank is expected to keep its key overnight target rate at 0.25% in accordance with its conditional commitment to do so until the end of the first quarter.
-By Don Curren, Dow Jones Newswires; 416-306-2020; don.curren@dowjones.com
(Nick Hastings in London contributed to this article.)
May The Force Be With You.
Eddie's Free Forex Class