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GBP/USD at 1.60+

GBP/USD at 1.60+

As pressures re-emerged in sovereign debt markets last week, eurozone Finance Ministers met in Copenhagen and announced an increase to the European firewall on Friday to €800 million. The firewall will be made up of the EFSF and the ESM schemes, although the latter will not be fully operational until mid-2013. Of this funding, €290 billion has already been allocated to Greece, Ireland and Portugal.

The question is how much comfort the market will take from this announcement when questions are already being raised about Spain, which is almost double the size of those countries already being assisted. Meanwhile, Eurozone inflation is slowly grinding lower, falling only slightly from 2.7% to 2.6% in March.  GBP/EUR fell moderately as a result of this mixed news.

US consumers stepped up their spending in February even as incomes rose only modestly, partly reflecting higher energy costs and lower savings. Personal spending jumped 0.8% on the month, the best gain since July, while incomes increased 0.2% over the weekend, China’s official PMI manufacturing index rose to 53.1 in March from 51.0 in February. This report was much stronger than expected (consensus 50.5) and has eased market concerns about a marked slowdown in the world’s second-largest economy. As a result of this renewed global confidence the US dollar has weakened and thus we have seen GBP/USD pass the 1.60 mark.

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