Pound makes gains against the euro after German GDP data

The pound strengthened against the single currency yesterday, finishing the day at 1.1169.

• In early trading yesterday the pound weakened against the single currency, as the gloomy Bank of England Quarterly Inflation Report weighed on investors’ minds. Governor Mervyn King’s forecast that the UK economy’s recovery will be “slow and protracted” did little to ease sterling’s early plight against the euro.
  
• The BoE expects inflation to fall to 0.5 percent before rising to just above 1 percent in two years' time, while the economy is seen recovering at a slower pace than previously thought.
  
• Sterling was also under early pressure as stock markets were sluggish, although the FTSE 100 eventually finished the day 0.7% up, with a recovery in bank stocks benefiting the pound.
  
• However, in early trading today the euro is under selling pressure following Germany releasing worse than expected GDP data. The German growth figures showed their economy contracted by 3.8% in the first quarter, and by 6.9% on an annualised basis.
  
• With no major announcements due in the UK today, investors will turn their attention to the eurozone GDP figures released at 10.00 BST.

Pound weakens against the US dollar

The pound weakened against the US dollar yesterday, finishing the day at $1.5156.

• In early trading yesterday the pound was buoyed by rallying equities, bringing sterling off a day low of 1.5059.
  
• With no major economic announcements in the UK, investors waited for the announcement of US jobless claims figures in the afternoon. The data showed that during the preceding month 637,000 new Americans applied for unemployment benefit and 6.560 million continued to do so. Both these figures were larger than expected and suggested that the US is suffering more than some expected from recessionary pressures. As such the US dollar’s position was undermined and the pound was able to post further gains.
  
• Producer Price Index data was also released in the US and with volatile food and energy prices removed from the equation they stood 3.4% up on the day and in line with expectations.
  
• With the FTSE closing the day at 4,362.58, up 31.21, the pound continued to strengthen over a broadly weaker dollar as improved sentiment saw investors’ risk appetite improve.
  
• In today’s trading the pound continues to hold its ground as the market awaits the announcement of Consumer Price Index (CPI) data in the US at 13.30 BST. A key indicator for inflation, CPI data measures the changes of prices for a basket of goods in the US economy and investors are currently anticipating a 0.6% contraction on the year. A result significantly different to this will certainly see the pound/dollar rate move sharply.

Euro falls against the US dollar after German GDP data

The euro strengthened against the US dollar yesterday, but has begun losing ground this morning following worse-than-expected GDP data from Germany.

• In early trading yesterday the euro weakened against the dollar as general risk aversion returned to the market. Surprisingly weak US retail sales data released on Wednesday evening, together with the Bank of England’s gloomy outlook for the UK’s economic recovery, dissuaded investors from buying into perceived riskier currencies generally, with the euro suffering as a result.
  
• However, the euro recovered ground in the afternoon following small gains on equity markets, to finish the day slightly up against the dollar.
  
• But the euro has slipped against the US dollar this morning after data showed Germany's gross domestic product fell by 3.8 percent in the first quarter, more than had been expected. The Wiesbaden-based Federal Statistical Office says it is the biggest drop since it began tracking quarter-to-quarter growth in 1970. Forecasts had been for a drop of 3.0 percent on the quarter, seasonally adjusted.
  
• The number of new jobless claims in the US rose to a seasonally adjusted 637,000, from a revised 605,000 the previous week, the Labor Department said. The figures released yesterday exceeded analysts' expectations of 610,000.
  
• Other data yesterday showed US wholesale prices climbed 0.3 percent last month, larger than the 0.1 percent gain economists had expected. The biggest jump in food costs in more than a year offset a second monthly decline in the price of energy products.
  
• There are no significant data releases due from the UK today, while in the US the Consumer Price Index, Empire Manufacturing, Net Long Term TIC Flows, Industrial Production and University of Michigan Consumer Confidence figures are released this afternoon.

New Zealand dollar loses ground after worse-than-expected Retail Sales data

The New Zealand dollar lost ground to the pound overnight after NZ retail sales came in worse-than-expected.

• New Zealand ’s first quarter Retail Sales data fell by a record 2.9%, almost double analysts’ forecasts.
  
• This data will only serve to increase expectations that the Reserve Bank of New Zealand will cut rates further in order to try and revive the ailing economy.
  
• Support for the kiwi remains fragile as worries over the timing of the global economic recovery continue.

Australian dollar claws back some ground against sterling

The Australian dollar managed to claw back some of the previous day's losses against sterling yesterday, as the pound continues to be weighed down by a bleak economic outlook.

• Markets were given a sobering reminder of the difficult recover the UK economy is facing with Wednesday's BoE inflation report.
  
• The British central bank forecast inflation to go well under the banks target range while the economy is expected to recover at a slower pace than was originally thought.
  
• The aussie dollar, on the other hand, remains well supported as a recovery in equity markets yesterday increased risk appetite and demand for higher yielding currencies.
  
• However, the pound has regained some ground against the aussie dollar this morning, after investors sold the euro and bought the pound following worse-than-expected German GDP figures
  With no economic data due from the UK today direction is likely to be determined by broader market movements.

Euro falls after much worse than expected German GDP figures

The euro fell against the pound and the US dollar this morning after Germany released GDP figures which showed that the recession in the eurozone's largest economy is much deeper than expected.

The German first quarter GDP data, released at 7.00 BST this morning, showed a contraction of 3.8% quarter on quarter, compared with a forecast contraction of 3.0%.

Investors will now look to eurozone GDP data due at 10.00 BST today, and the euro may fall sharply if these figures mirror the German data.