The weekend’s G20 meeting and last week’s more dovish news from central banks around the world led to a big, fat and juicy risk rally yesterday which was jumped on by a starving investor base.

Mining shares leapt higher as gold hit yet another record high with base metals also performing well. The news that Kraft are still looking to buy Cadbury, although their latest foray to do so looks doomed, also acted as a sweetener for bulls who were sat on the sideline last week.

This was of course reciprocated in FX circles with the dollar moving to a 15 month low against a basket of currencies. The greenback was on the back foot early as the results of an IMF study reported that the ‘dollar is overvalued’. It’s obvious Sherlock Holmes has ditched finding Moriarty and is now working at the IMF. We have known this for a while hence our 12 month view of GBP/USD being at 1.80.

It has been an interesting night however for the pound with both good and bad news being published, The good was an unexpected increase in the RICS House Price Balance; 34 vs. 28 expected whilst the bad could have long lingering effects.

Fitch ratings, the agency that downgraded Ireland’s sovereign debt rating last week, said that “of the four major economies with AAA status, the UK was the most at risk”. Any fiscal stimulus that may be enacted will act as a weight on this; something that will have politicians wringing their hands as we move closer to election time. Fitch did reiterate a ‘stable’ outlook however with S&P still negative on the UK.

Ahead of tomorrow’s Inflation Report from the UK we have ZEW economic sentiment from Germany; the figure is expected to fall back to 55.0 against last month’s reading of 56.0. We would expect this to have a slight weakening effect on the euro.

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