Pound rallies amidst signs of growth.

Economic data out yesterday was positive throughout most
markets, completely opposite to the health of the real economies.
Equity markets in the US have rallied on the back of the figures
and consumer confidence has risen. Most investors expect the
Federal Reserve to continue with their QE and bond purchasing
stimulus plan to provide momentum to the economy. However, the USD
is a little weak even though the Fed has hinted that it may claw
back some of its stimulus program as it feels that inflation is
under control and the economy is slowly meandering back to growth.
Most of the direction on the USD as well as investor sentiment will
be determined by Friday’s Non Farm payroll figures. Though likely
to come out in line with expectations, any move whether positive or
negative will provide a more stable direction on the health of the
Greenback. The recent selloff in the US Dollar and the risk on
approach by investors is mainly attributed to strong corporate
earnings rather than the economy itself, while some feel it is due
to cheap money being supplied by Central Banks. The Federal Reserve
meets this evening, and will take a call on further QE and interest
rates, though interest rates hardly have any room for change. The
Euro trades at 1.3170 against the greenback.

From the Euro zone, the main news grabbing the headlines, even
though there seems to be increasing consumer sentiment in Germany,
is the unemployment figures released lately. Unemployment for the
Euro zone region as a whole has topped the 20 million mark, taking
the tally to a staggering 12.1%. In the wake of this, we are likely
to see an interest rate cut for the region, in an unlikely attempt
to control employment rates, in the wake of the IMF continually
maintaining that the stimulus program for the region be eased off a
little. This has led to bond maturity dates being extended for most
countries in the Euro zone. Unemployment in Spain, France and
Greece are all soaring, while the new coalition government in Italy
provided some stability in consumer confidence for the country as
they held a successful 5yr and 10yr bond auction.

Sterling has managed to rally nicely in the wake of the data
releases from the Euro zone, coupled with it’s strong GDP figure of
0.3%. A lot still needs to be done to the economy as higher prices
(inflation for March being 2.8%), lower wages and low demand
continue to squeeze consumers. However, business confidence seems
to be marginally better after the GDP figure, as most people were
expecting the UK to fall into a triple dip recession. In some more
good news, banks created more home loans in March than analyst
predictions, as there are signs of a nominal recovery into growth.
However, the IMF still feels that George Osborne needs to scale
back the stimulus measures a bit and extend the program for longer.
SME lending in the region also reached it’s highest level for 2
years. GBP/USD sits well above the 1.55 mark for the interim, and
investors remain bullish for it to breach 1.56 however, this could
be pulled back depending on the decisions at the FOMC meeting in
the US and higher non farm payroll figures on Friday.