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Where now for the pound?

Following another rollercoaster week in the currency markets we have seen the pound rally and then submit its gains…today and tomorrow we have the G7 meeting in Rome and the recent weakness in the pound is expected to be a confrontational topic.  It is expected that French and German ministers will confront the chancellor following the dramatic sell off in the pound over the last year- the currency has evolved from a strong safe haven currency to a shadow of its former self- losing over a quarter of its value.  Following Wednesdays Bank Of England inflation report the expectation is that UK interest rates will be cut to or towards 0% mirroring that of the US and also that quantitative easing may be used to further stimulate the economy.  We witnessed a distinct sell off in the pound in the aftermath and this negativity is incensing European nations as their exporters suffer in favour of cheaper British goods.

Today we have seen GDP data from Germany showing a larger than expected contraction of 2.1% and following this we have seen EMU GDP contract by 1.5%- this is the deepest contraction on record and emphasizes today’s contraction in Germany with Spain, France & Italy also posting negative GDP.  This is worrying news from the Eurozone and there is little light at the end of the tunnel- GDP is expected to fall by 3% in 2009.

So we have deepening recessionary trends in the UK and the Eurozone…however in the US retail sales rose by a bullish 1% yesterday.  The market was quick to play this down but nonetheless this is an unexpectedly strong number- does this suggest a glimmer of hope?  Today we have the Michigan consumer sentiment from the US- will this show a positive reading after the Obama feel good factor? 

Looking at the market fluctuations we have understandably witnessed lots of volatility- this morning we have already seen early gains in the pound against the dollar and the euro…

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