The pound bounced off the lows we saw on Wednesday, as investors took advantage of buying the pound at relatively cheap levels. However, the gains we saw were modest as concerns surround the mounting debt problems the UK is facing up to – indeed the UK may be in danger of losing its AAA credit rating after rating agencies expressed their doubts about Britain’s ability to cope with its public debt. If the UK were to suffer the embarrassment of having its rating downgraded – following Ireland, Spain, Portugal, and Greece who have already suffered downgrades – it would increase the cost of sovereign borrowing, making it more than likely interest rates and taxes would have to go up. In other news, it was confirmed that Britain’s manufacturing output suffered its sharpest decline in the first quarter of this year since records began in 1975. Within the eurozone, industrial new orders came in slightly better than expected, but they are still at historically very low levels.
In early trading today, the pound is back under selling pressure in anticipation of GDP figures released in the UK this morning. We are expecting to see that the UK’s economy has contracted by 1.5% in the first quarter of this year – the third consecutive quarter of contraction. In addition to this, retail sales figures are being released giving an indication of how consumers are fairing in the economic slowdown. IFO release their business climate and expectations survey within Germany this morning.
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