Pound sell off continues

Let us start with the good news from the UK economy before we dive into the bad and the ugly. UK CBI distributive trades showed a good rise in the number of retailers expecting an increase in sales- the number was up from -8 to +23. John Lewis says weekly department sales up 15.1% so good feedback there. UK GDP revision for the fourth quarter came in at 0.3% and upward revision from 0.1%- better than expected- so why has the pound dropped further?

I was bemused on the fall in the pound following the upward revision- I can only attribute it to speculators thinking the data would be stronger than 0.3% and buying the rumour and then selling the fact. Sterling has had a mini run lower over the last week falling 3% against the euro, 2% against the USD and 4% on the Yen. Mixed economic data will not be helping- particularly UK investment data which was appalling, dropping 5.8% in the last quarter to leave the year on year figure down a whopping 24.1%. In addition Nationwide house price data came in weaker than expected at -1.0% much weaker than the forecasted +0.4%.

News from Greece continued to spread fears of contagion through Europe. The talk of a possible downgrade of the Greek sovereign rating, along with their onerous funding programme, provoked a surge in the country’s bond yields as well as comments from other European worthies. Remember that a downgrade from current levels would remove Greece’s ability to enter into repurchase agreements with the ECB using their bonds thus cutting off access to the underlying cheap funding. The Greek PM is talking tough stating that those responsible for the crisis must pay and now is the time for decisions and actions for the country. The mood of fear is still driving the USD and JPY higher.