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The heavyweight boxing match between sterling and the euro continued yesterday although these are not two boxers in their prime; instead they seem like a couple of punch-drunk journeymen lumping bits out of each other. If yesterday was a round, then it looks like the euro won on points. Measures of industrial and manufacturing production from both were poor with the European number missing expectations markedly however poor data from the US yesterday afternoon and a sense that the euro sell-off may be overdone in the short term is allowing the single currency some breathing space.

The single currency has also leapt this morning after a surprisingly strong number in the form of German GDP for the first quarter. It came out at 1.5% vs. a 0.9% expectation. Most of the gains seem to be as a result of strong domestic demand, something we expect to pare down in the 2^nd quarter, while the strong euro has hurt the trade portion of the release. After the German GDP release we get the ‘flash’ or preliminary reading of European GDP at 10am. Following the German beat and France also surprising higher it is likely that the Eurozone-wide number will beat early estimates of a 0.6% increase.

Trichet is due to speak this morning in what could be a ‘make or break’ for the single currency. Previous to this month’s ECB meeting the euro has normally surged on a JCT missive but the last time he got in front of a microphone it signaled the start of the decline of the euro from its highs of 1.49. Whether he will give any credence to the IMF’s belief that rates should not move higher remains to be seen but we expect significant volatility from the exchange.

According to the National Institute of Economic and Social Research (NIESR) the double dip threat has gone although the recovery remains fragile. The think-tank estimated GDP growth in the three months to April at just 0.3% on the back of a slip in manufacturing, as evidenced in yesterday’s production numbers, and consumers’ fears of austerity hurting consumption.

The data calendar is finished off today by US consumer confidence at 14.55.

Have a good weekend

Latest exchange rates at time of writing