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The markets decided to get long risk yesterday in an attempt to bargain hunt assets that had been crushed in Monday’s falls whilst it was evident that profit taking was the driver for traders exiting haven trades such as the USD and CHF. Equity markets managed to squirt higher whilst commodities were also bid although the overnight Asian market has reversed this with the euro coming under pressure.

The single currency was one of the best performers yesterday as German business confidence remained surprisingly strong in face of the pressures from high commodities, an overly strong euro and fears over the periphery. The IFO release remained at 114.2 vs. an expected fall  and EURUSD managed to break back above the 1.41 level. Gains were harder to come by against the pound despite poor borrowing figures from the UK. Net borrowing by the UK government was £7.7bn in April, above the forecast of £4.4bn which starts the fiscal year badly. We believe the picture will improve over the year as the austerity measures come in to effect. Sterling did better to resist falls when we factor in a fairly dovish round of chat from MPC member Fisher said a rate rise now could be “exactly wrong thing” to do as there are immediate downside risks to the growth outlook but wage growth is slow and inflation is not getting embedded. This was countered by MPC member Weale who said the May inflation forecast was based on an interest rate increase “perhaps late this year. If one were to start earlier, perhaps rates wouldn’t need to rise so steeply”.

GBP is looking to retest the recent highs against the euro (1.1530) this morning and should receive a bump from today’s GDP release at 09.30.

It is only likely to confirm that growth in the UK was 0.5% in the 1^st quarter although some economists are looking for a slight revision higher to 0.6% or 0.7%. This is possible due to an increase in surveys from the end of the quarter that was not effected heavily by the earlier adverse weather but it’s not something to hang your hat on as such.

Apart from the UK GDP release today’s key economic release is German GFK consumer confidence. It is expected to decline to 5.6 in June, although following the IFO release yesterday we may see some resilience from the German consumers.

Latest exchange rates at time of writing