The currency blog

Sterling weakened yesterday after the S&P said it was maintaining its negative outlook on UK’s AAA credit rating. Data released from the UK included a survey by GfK, which showed 58% of U.K. households expect economic conditions to deteriorate further, with nearly two-fifths of the respondents looking to cut back on consumption. In addition, the final Q1 GDP reading showed economic activity expanded 0.3% from the last three-months of 2009, which was largely in-line with the initial forecast. However, the growth rate slipped 0.2% from the previous year to mark the slowest pace of contraction since the third-quarter of 2008. Comments from the BoE’s Posen that a continued UK recovery can not be guaranteed also weighed on the currency.

The euro consolidated well below two-month peaks against the dollar as investors were cautious about the single currency ahead of Greece’s return to capital markets for the first time since late April. This along with Moody’s cut in Portugal’s rating to A1 with a stable outlook is going to continue to weigh on the euro in the short term and doesn’t bode well ahead of the bank stress test results due next week.

The main focus today will be on UK CPI which is expected to moderate from 3.4% YoY to 3.1% YoY in June. Inflation figures will be key for future rate decisions from the MPC with committee member Andrew Sentance voicing his concerns recently on rising inflation.  German ZEW is expected to deteriorate further to 25.3 in July.  Swiss combined PPI, Canada trade balance and US trade balance will also be released.

Discuss on this on the Currency Exchange Forum