httpvh://www.youtube.com/watch?v=fVxna_YgvuI

Risky assets traded violently in very whippy markets yesterday, swerving from profit to loss on an almost hourly basis. The DJIA in New York opened up 0.2 %, was down 1.2% 2 hours later and managed to finish 0.05% higher on the day! How the hell did that happen?

These shifts obviously prompted big moves in the riskier portions of the FX market as well with EUR, GBP, AUD and NZD the main casualties; EURUSD traded between 1.2250 and 1.2420, GBPUSD between 1.4252 and 1.4547 and AUDUSD between 0.8865 and 0.8686. Its likely that we will see further volatility moving forward.

Another big goal has been set for sterling watchers in the near future; June 22^nd, the date of the Tories’ ‘Emergency Budget’. Osborne indulged in what is known as ‘Kitchen-Sinking’ yesterday, the act of publicizing every problem with the accounts that he had received in an attempt to make sure the government is viewed as starting with a clean slate. This included blames of fiddles alongside accusations of ministers passing expensive pet projects days before the election.

This did have one immediate effect; the market got a little spooked. The fear is the same one that we have lived with since the beginning of the year; that our ability to raise funds will be severely dented. The market did like the announcement that we would receive details of the first £6bn of cuts on Monday however.

The prospects for a sterling recovery over the coming weeks and months are very dependent on the inflation picture; a picture that we get a glimpse of today at 09.30. The Bank of England warned of the risks of excessive inflation in last week’s Inflation Report and it has been excessively sticky here in the UK during the recession. Should it stay high and the MPC is forced to become more and more dovish then the pound will have its wings clipped.

The CPI figure is more than likely to be trading above 3% and therefore would prompt George Osborne and Mervyn King to exchange letters at 10.30 BST.

Other data includes German ZEW economic sentiment which we expect to fall given the problems the EU is suffering and the EU trade balance which should have adjusted positively given the recent weakness of the single currency.