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A downgrade of global growth forecasts by the World Bank yesterday combined with continuing unrest in Iran led stock markets and other risky assets, currencies included, lower yesterday as some air was let out of the recovery balloon. The Washington organidation predicts global growth will decline by 2.9% as supposed to their March estimate of 1.7%. Naturally we saw a move to safe assets such as US treasury debt and the dollar benefited against all its major trading partners.

The euro came in for battering yesterday as well with GBP/EUR making another 2009 high before falling back on risk concerns. German IFO printed at 85.9 against a consensus view of 85.0; better than expected but not by much. With the aggressive increases in European PMIs over the past few months we were hoping for a figure further towards the 90.00 mark but this failed to materialise. In the hours after the release EUR lost ground against most of its crosses negating any good sentiment that Messrs Nowotny and Trichet had given the single currency after their assertions that there would be no more interest rate cuts in the Eurozone until the mid part of next year.

EUR has strengthened overnight as well in preparation for tomorrow’s auction of 1% funding. This is the first batch of EU quantitative easing and markets will see how popular this is with EU area banks; we expect it will be very popular given the good yield and that the funds are unlimited. This could strengthen the EUR over the coming days although some believe the effect will be negligible.

 Data this morning has also been good to the single currency with German consumer confidence being released at 2.9 vs. a 2.5 estimate. Sterling could come under pressure from BBA mortgage approvals at 09.30 should they fall as house prices did on Sunday night. News from the US housing market is also due at 15.00 with an improvement expected across the board.

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