Confidence in GBP and the UK
Overnight, Bank of England Governor King noted that rates would need to stay low for some time while suggesting that it would eventually return to normal levels.
UK saw the release of PMI Construction which came in slightly above expectations at 55.8 while Credit lending and mortgage approvals were a welcome relief from disappointing data yesterday. BoE King’s late comments on rates and the currency failed to support Sterling particularly when he said on the currency ‘We have been able to lower the value of Sterling to make the British economy more competitive’ suggesting that the way the Central Bank had handled Sterling may have been the lever needed to steer the UK away from the problems now faced by the euro area.
Releases of European data left a bitter taste with the PMI’s below expectations and Unemployment continuing to rise. Indeed Germany’s unemployment rate was revised higher to 6.8% due to job losses in April. European markets struggled to hold on to positive mood, reversing initially however not completely capitulating.
Focus will be on the ECB rates announcement and although we expect no changes to rates we suspect that Draghi will be questioned closely as to whether that decision was unanimous and focus will turn to the cautiousness of the ECB in light of recent data and the risks from indebted Eurozone countries such as Spain. Press reports noted yesterday that the ECB had not closed the doors to more measures (which would most likely increase supply of Euro and thus weaken the currency).
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