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Pound is up because of the World Cup

Pound is up because of the World Cup

Despite the promise of large tax rises, and government spending cuts leading to job cuts, all it takes is a little bit of sunshine and football to make the UK consumer to forget about the coming troubles and to open their wallets. Yesterday’s strong retail figures, were the best in three years, and their effect has been to push the Pound up to a level not seen since February, and 9.5% higher than the low it hit only in mid May. The figures point to at least some of the momentum of the recovery making its way into the third quarter, however as the numbers are being put down to the good weather plus the World Cup,  and with the government’s fiscal tightening about the start in earnest, the UK consumer may not be so spendthrift in the next few months.

The Pound has also risen against the Euro, touching 1.20 overnight, but it’s appreciation against the single currency is much more restrained than it climb against the Dollar as the Eurozone is benefitting from its own surge, pushing up to 1.30 against the Dollar. Although last week’s release of the banking stress test provided only limited relief for investors (the stresses the test applied to the banks didn’t even include a sovereign default), this week has brought positive news with Eurozone money supply and German consumer confidence coming in high, while Spain has managed to successfully complete its bond auctions. Although the stress test may be dismissing the possibility of a Eurozone country default, more for political reasons than for economic ones, the possibility is still likely to hang over the Euro, for some time to come.

The data releases today are skewed towards the US with just the MPC giving testimony to the Treasury Select Committee , providing any information on the UK economy. The MPC are likely to be questioned about the quality of the forecasting for inflation, but whether any information will be given beyond what is in the MPC minutes is uncertain. Over in the US we have durable goods orders and the usual Fed Beige Book snapshot of the US economy. The Pound is facing some resistance in breaking above 1.56 against the Dollar and 1.20 against the Euro, and with little new data out today it may not manage to break through these levels.

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