Sterling lost its weekly gains yesterday as poor retail sales data once again raised the spectre of a recession in the UK. May’s figure was an unexpected jump and yesterday’s -3.9% reading all but cancelled the goodwill seen over the beginning of the week. interest rate expectations in the UK have shifted to a dovish stance as a result; lower sales lead to less inflationary pressure and may allow the MPC to retarget growth.

News from the Eurozone was not much better. The significant German IFO business climate figure fell well short of expectations instead marking its lowest level since September 2005.  The market was expecting a fall after poor Eurozone GDP figures over previous weeks, a poor ZEW survey last week and as a result we would expect ECB members to moderate their hawkish stance in any public comments.

Looking forward to today we will be watching the UK GDP estimate for the second quarter closely; estimations point to a slight slowdown but any release close to 0.0% or God forbid negative could seriously weaken confidence in sterling crosses as the technical definition of recession starts to be fulfilled. The University of Michigan Consumer Confidence disclosure could also prove to be key given it’s the first major consumer confidence study in the US since the Fannie Mae and Freddie Mac storm started.

Have a great weekend.

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 Please feel free to contact me (jeremy.cook@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our:Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.   

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