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Sterling pushed to a 2 month high against the euro yesterday despite a GDP figure that showed a sharp fall in consumer spending. While it is good news that the figure was positive at 0.5%, the component parts are showing that the road is looking increasingly rocky for the UK. Consumer spending fell by the most since the 2nd quarter of 2009, decreasing by 0.6%, as the average consumer remains stuck between price rises and fears over service and job cuts from the coalition government. Business investment also fell by 7.1%. Government spending rose by 1% but we all know that we will be unable to rely on this over the next few years. The private sector is not stepping up yet to fill the gap it seems. One bright spot were export numbers that are higher as businesses are taking advantage of the weak pound while imports are lower that may suggest a moderation of imported commodity inflation.

So while we looked at the data and thought sterling may be in for a tough afternoon, it pushed to 8 week highs of 1.1584 before sliding back overnight after Asian markets decided today was a day to buy up risky assets. Equities were broadly flay yesterday as traders didn’t want o get overly committed to anything as the potential for sudden and violent shocks to the status quo are all too likely at the moment.

Good news came for Greece yesterday as a Greek government spokesman denied that a referendum on austerity measures or the country’s participation in the euro was being thought about (maybe as a result of the 80% who would vote against the measures according to a weekend poll). This follows gains for the opposition New Democracy party in opinion polls in recent weeks.

Ratings agencies were back in the news as well yesterday with Fitch saying that it does not envisage any cuts to ratings on German banks as a result of their holding of Greek debt. What they may say about Austrian and Italian banks is another matter of course.

It was not all rosy for the EU however yesterday as German consumer confidence showed an unexpecred slide back to levels not seen since December (pre-Irish bailout). It seems that the average German is getting a little annoyed about inflation and spending conditions in their country; something we believe will kick EU consumer confidence lower on Friday.

Today marks the start of the G8 summit in France with leaders expected to debate the debt crisis in Europe, Japan’s nuclear issues, the uprisings in the Middle East and development programs in Africa. We would expect a fair few ‘tapebombs’ today (comments that flash across newswire screens and panic traders) so prices may be volatile throughout the session. Structured data comes in the form of the US GDP, that is expected to be revised higher to 2.2%, and the usual weekly jobless claims number which is expected at around the 400k level.

Latest exchange rates at time of writing