Sterling has slipped back nearly four percent off the highs we saw early last week. The post budget wave has broken and the pound is now deciding whether to sink or swim. As we approach the June low at 1.1900 the markets are favouring the former, and we would certainly become concerned if we break below that level.
Uninspiring economic data from both sides of the channel did little to drive the markets over the last week. More important was the news that the Spanish managed to get away a major bond auction even while credit ratings agencies cast doubts over the nation’s debt rating. The Euro rallied sharply in response, catching speculators offside, helping to fuel a “short squeeze” as traders bought the euro to cover positions and square their books. The single currency remains close to 2 month highs this morning against the US dollar. This week the Euro has benefitted further from positive ECB comments, stronger industrial production data and a general recovery in risk appetite driven by a recovery in stock markets. News that the European bank stress tests are likely to be no more challenging than expected also helped sentiment toward the euro zone banking sector.
