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Sterling started strongly in early trading moving towards 1.6550 on the USD, 1.1650 against the Euro and testing 157 on the Yen. We then had the release of UK second quarter GDP which gave sterling a cold shower dropping a full cent against the USD and slipping against most other currencies. The GDP number came in at -0.8 against a forecast of -0.3- this brings the year on year fall to -5.6% and is the biggest year on year fall since records commenced in 1955.

The USD strengthened a little yesterday following comments from the Fed that they may not actually need to buy all of the bonds that it previously announced- this is effectively reining in the Feds QE measures. If we look back as to the level of weakness that the USD experienced on the announcement of the fed printing money- we saw a move from 1.29 to 1.47. Similar hints sprung from the Bank of England as MPC member Andrew Sentence said that the MPC could pause it’s bond-buying program- this added support for sterling.

Other data out today came in positive for Germany as PMI data was stronger than expected at 45.2- up from 40.9 in June in manufacturing and 48.4 from 45.2 for services. French PMI was mixed as manufacturing improved but services dropped.
The main mover in the markets yesterday was the Japanese Yen which retreated against the USD, EUR and GBP. It seems Japanese investors are now looking at overseas assets and yield as confidence in the markets improves. GBP/JPY is up from 148 last week to 156 this morning.

Nothing major of note for the rest of today. Timothy Geithner the US treasury secretary will deliver a press conference on the US economy as 14:00 GMT. Aside from that I would expect to see further grappling between tight ranges today- sterling will be under pressure on the weak GDP but supported by good risk appetite.

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