httpvh://www.youtube.com/watch?v=EGEPRrPPdT8

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It was as if the past 3 weeks never happened yesterday as sterling piled onwards after some great services data, euro weakened as further cracks in the growth veneer emerged and the US dollar slumped as Fed members squabbled over whether more stimulus was needed.

The UK service sector is of course key to the onward progress of the UK economy as a whole and, following a downbeat assessment from the British Chambers of Commerce, the PMI reading surprised to the upside and indicated the fastest growth in 13 months. Whether this optimism is reflected in other measures such as consumer confidence, retails sales and unemployment remains to be seen but the 1 cent jump seen against the euro is testament to the susceptibility of pound to data be it good or bad. This figure also suggests that UK GDP in the 1st quarter will be around the 0.8-0.9% area as opposed to around 0.5% that was forecast after the February figure. Rate-setters on the BOE’s Monetary Policy Committee will be glad for this figure as it makes their job just a little bit easier as when to raise rates; it’s easier to justify rate rises whilst the economy is growing.

The probability is that the European Central Bank hikes rates tomorrow despite figures released yesterday that consumers are tightening their belts and Portugal’s belt is so tight it’s killing them. Eurozone retail sales fell by -0.1% in March, a trend that will only continue if rates rise. The news out of Portugal was roughly what we’ve heard every day for the past few months; further downgrades for banks and the sovereign and rumours of a bail out. One thing that we haven’t heard in recent weeks however is that Portuguese banks have virtually no more margin to buy country’s government debt. The game is up and for good measure we have a sale of EUR2bn of Portuguese debt due today as well.

The minutes of the latest Federal Reserve meeting show that they are having the same problem as pretty much every other central bank: some members are indicating that economic conditions might merit a move toward a tighter stance this year, while others are arguing that further stimulus or a continuation of current facilities is necessary beyond the end of the year. This has weakened the dollar overnight to a 2 week high while EURUSD is pushing on 5 month highs at 1.4280.

Key bits of data today come from the UK in its manufacturing and industrial production announcements at 09.30 and the hope is that this follows the services PMI’s lead. We will also get confirmation of 4^th quarter GDP from the Eurozone and mortgage applications from the US at 12 noon.

 Latest exchange rates at time of writing