Sterling has started the day on the back foot trading down against a basket of currencies including the USD and Euro. The market looked nervous on the pound before this morning’s recent economic data which confirmed fears that the UK economy is showing signs of heading back into a recession. The main number, the preliminary growth (GDP) estimate for the last quarter of 2011 showed the economy had contracted by –0.2% more than the expected –0.1%. We have also seen the release of the BoE minutes which showed a unanimous 9-0-0 vote to leave QE and interest rates unchanged at the last meeting. Mervyn King in his speech yesterday made it clear the central bank was prepared to aid the economy again through QE with Inflation falling and the UK facing an “arduous, long and uneven” economic recovery. Sterling is starting to recover since this morning’s data, currently up from a 1.1918 low to 1.1993 vs. the Euro.
The Euro is by no means out of the woods but a general move towards more risk in the last few days has seen the single currency trade up into 1.30 against the USD and keep the pound at bay around the 1.19 level. The Euro was also supported yesterday by better than expected euro zone services and manufacturing data, although the unresolved Greek debt swap deal is continuing to hinder any major gains. This morning has seen the release of German IFO Business climate data which measures economic health and was slightly better than expected, providing even more positive news…
The USD has made some small gains against the Euro and pound this morning before the raft of economic data due this afternoon and tonight. US pending home sales is expected to show a fall to –0.6% from 7.3% last time ahead of the FOMC statement due at 5.30pm followed by the press conference at 7.15pm and US President Obama’s state of Nation speech this evening.