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What a week for the pound!  After a spell of inactivity akin to watching paint dry suddenly the GBP/EUR pair sprung into life.

The move started last Friday after we had further positive feedback from the US economy as existing home sales came in much better than forecast hitting 2 year highs; this data and a healthy economic assessment from Ben Bernanke boosted the good cheer in the markets. We are approaching the one year mark from the collapse in the financial systems and at the moment things are looking pretty steady and stable. However I personally feel that economic data will be closely scrutinized in the next quarter to look for sustainability in the markets and not simply a knee jerk response to extra stimulus. An article in the FT by Nouriel Roubini points to a threat of a double-dip recession if recovery turns anaemic- this would not be good news for sterling. 

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This morning we have seen Q2 GDP come in better than expected at -0.7% against the expected -0.8%. Although still a poor reading the fact that it has come in better than expected will be a welcome relief for sterling following a week to forget. In the markets we have not seen a huge reaction to the news so far although we are up against the USD and the EUR from yesterdays lows. Crucially GBP/EUR has popped its head back over the 1.1363 level which is important and sterling has gained against the JPY and the USD- with a bank holiday in store for Monday we could see some profit taking in favour of the pound later today after a heavy week of selling sterling.

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Are we seeing another period of sterling weakness? The signs are not looking too good for the beleaguered pound and the defining moment will be tomorrows UK GDP data which is expected to emphasize a further contraction in growth. Negatives are also growing due to doubts that QE measures introduced have not had the required effect in the UK economy and with the door open for further expansion of the QE programme this does not bode well. With the prospect of rising unemployment, contracting growth and further stimulus being probed in an economy with hugely spiraling public debt then you can see why the market is bearish on the pound. However the market changes sentiment like a weather cock and a better than expected GDP number could kick start the pound back into life tomorrow.

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The pound had another dismal day in the markets yesterday and has not started particularly well this morning. The pound has slipped to 1.63 against the USD and to 1.1379 against the euro. With little fresh data from the UK the market is selling sterling more on sentiment, the sentiment being that the UK is diverging in its central bank policy from the ECB and the Federal Reserve. With the prospect of a further contraction in UK GDP on Friday this could be a week to forget for the pound. Economic data just out from Germany in the IFO survey also came in slightly better than expected for both business sentiment and expectations- this could add more woes to the pound although no price action seen as yet.

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On Friday we had further positive feedback from the US economy as existing home sales came in much better than forecast hitting 2 year highs; this data and a healthy economic assessment from Ben Bernanke boosted the good cheer in the markets. We are approaching the one year mark from the collapse in the financial systems and at the moment things are looking pretty steady and stable. However I feel economic data will be closely scrutinized in the next quarter to look for sustainability in the markets and not simply a knee jerk response to extra stimulus. An article in the FT by Nouriel Roubini points to a threat of a double-dip recession if recovery turns anaemic.

In the UK, the Institute of Chartered Accountants in England and Wales reported that business confidence turned positive for the first time in 2 years rising from -28.2 to +4.8. From the UK this week we see little data until Thursday with Gfk consumer confidence and then Q2 GDP. For the US we see the US S&P Home Price index, US Consumer Confidence, Durable goods and New Home Sales- the market will be looking for more signs of growth and sustainability to back up the positive testimony from Ben Bernanke.

Chin up Australia- yes you have lost the Ashes and the rugby against rivals New Zealand over the weekend- however do not despair as your currency is strong- hitting new 12 year highs against sterling at 1.9608. Probably not the best news for our Australian friends here in the UK though…

Yesterday we saw a flurry of data from the UK economy. We firstly had retail sales which came in at 0.4% against the expectation of a 0.2% increase, UK M4 money supply came in stronger than expected at 1% and mortgage lending posted a 26% increase in July- well above forecast and yet sterling slipped. The damning data for sterling was centered on the public sector net borrowing number which rocketed to 8 billion against a forecast of 500 million. This got the politicians animated as borrowing continues to increase and growth forecasts are looking less likely to achieve. It is expected that on September 30 the UK will officially post a positive GDP number but again this will be a lot to do with stimulus related growth- sustainability will be the key.
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