Sterling caught a bid from some in the market before the UK publishes hugely important first quarter GDP data; figures that are expected to finally end months of triple-dip speculation. The pound rose to its highest against the US dollar despite more weak data on Britain’s retailers. Positive numbers on the UK economy will lift a huge burden on sterling, and perhaps lead to a little more stability in the British currency over the coming weeks. The euro was trading lower again, declining to a two-and-a-half-week low against the US dollar with another disappointing business report from Germany adding weight to the case for a rate cut from the European Central Bank. However, the single currency has managed to attract demand following its drop, demand it may hold on to after Italy took a vital step towards forming a government.
Sterling
Sterling’s resilience to recent weak UK economic data and the market’s willingness to buy the currency before the GDP release indicates that investors expect Britain’s latest growth data to bring back some stability in the British pound. Having endured quite an explosive year so far, positive data will end months of speculation about the UK economy suffering an unprecedented triple-dip recession.
US dollar
The US dollar fell, touching its weakest level this week against the British pound after a surprisingly big drop in US durable goods data added to suspicions the US economy will slow in the coming months, hampered by uncertainties surrounding fiscal policy. The US dollar’s retreat and its position suggest that even with a solid US GDP figure, signs the US economy may struggle to keep the pace up are reinforcing the Federal Reserve’s case to keep stimulating the economy monthly.
Euro
The euro rebounded from a two-and-a-half-week low versus the US dollar and may hold steady after Italy nominated a candidate to become prime minister and form a government; a vital step towards bringing an end to political deadlock in Rome. Italy has been without a government since an inconclusive election result in February, fuelling doubts about political unity in the euro zone and the region’s ability to hold down the debt crisis this year. Investors have been extremely worried about the chances of a fresh election in Rome, which would have given candidates with extreme views another chance to accumulate significant support. Still, the immediate concern for traders backing the single currency is next week’s European Central Bank policy decision.