Pound surges higher

The pound made impressive gains yesterday following confirmation
that the second estimate of UK GDP came in unchanged at 0.8 per
cent as expected. The data has underlined the fact UK recovery
is outpacing that of other developed economies and leading to more
appetite for the pound.  It is likely that the Bank of England
will try to take some of the shine of the positivity surrounding
the recovery at next week’s meeting to avoid interest rate
expectation becoming even more optimistic for an early rate
rise. The pound is currently mirroring highs against the USD
seen at the beginning of January and is threatening to break to new
highs dating back to 2011.

Yesterday we saw softer data from the US in the form of durable
goods and the University of Michigan confidence survey. This
data has helped the market reassert its confidence that the US Fed
(FOMC) will lean away from tapering until at least March 2014,
although we may not see a taper until mid to late 2014.  This
helped the S&P index to push to fresh all-time highs and lead
the USD lower across the FX markets as the sentiment swung towards
a risk on mood. Today US markets are closed for Thanksgiving so
expect reduced liquidity today and tomorrow for Black Friday.

The euro has also made gains on the back of a coalition
agreement for Germany between Angela Merkel’s Christian Democrat
Union (CDU) and the Social Democratic Party (SPD).  In the
periphery, Ireland and Portugal’s yield spreads tightened helping
to lift confidence in the single currency.  Today we have
German CPI data and EUR consumer inflation expectations with
tomorrow confirming the EUR CPI number. Inflation data will be
closely gauged following a dramatic fall in inflation last month to
0.7per cent for Europe and escalating concerns over deflation in
the old continent.