Yesterday was a bit of a non-event in FX markets although data from China and Germany both give cause for cheer for GBP. Sterling endured a choppy morning bu settled into a slow upward trend by lunchtime while at the same time starting to consolidate above 1.16 against the EUR; you’d have to go back to november to have seen that previously.

News from China will always effect the global economy; if the smoke stacks above the world’s factory are firing then it is a fillip for those believing in a recovery. Chinese prices, inflation in other words, fell by less than the month previous in May signalling a possible aspect change in the fight against deflation. This was viewed as a positive with Asian markets higher overnight. The news from Germany was not so good however.

Hopes of a swift recovery by the German economy hurt the euro yesterday as exports fell by 4.8% on a month on month figure and is lower by 28.7% since this time last year; the steepest fall since records began in 1950. News that Arcandor, the largest department store owner in Germany and owner of the UK’s Thomas Cook (no relation), has filed for bankruptcy will not have helped sentiment either.

At the beginning of the week we heard about Lloyds TSB paying back £2.3bln to the UK government in order to get rid of the debt as quickly as possible. 10 US banks have decided to follow suit and are paying back a combined figure of $68bln; Tim Geithner, US Treasury Secretary, called the move ‘encouraging’.

Data is predominantly UK and US centric today with Industrial and Manufacturing Production figures due from Blighty while the US trade balance is tipped to strengthen the USD later today.

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