Good news for the UK as IMF upgrade GDP forecast despite growing inflation
18/Apr/2012 • Currency Updates•
Tuesday saw a successful day of trading for the pound as it made gains against both the euro and even more surprisingly the dollar. Data showing that UK inflation had inched to 3.5% in March from 3.4% in February, which was driven by things such as food and clothing prices, meant that there was a largely reinforced speculation that the Bank of England will not decide to inject more stimulus into the economy in the coming months. Successful Spanish bond auctions can also be attributed with the strengthening of the pound versus the Greenback as investors moved away from the dollar due to increased risk appetite. Adding to this positive news, the IMF also upgraded the UK’s GDP forecast yesterday stating that the deficit reduction plan boosted confidence within the country which in turn improved its global outlook.
Yesterday the euro initially strengthened as the ever worrying Spain managed to sell 3.2 billion euros of both 12-month and 18-month bills, although these bills were in fact at much higher yields compared with that a of month ago. The euro also drew strength from German ZEW figures which surprisingly showed that analyst sentiment in Europe’s largest economy was rising in the month of April to its highest level since June 2010. These early gains seen by the single currency were however not to last as investors in the market were still worried about Spain’s precarious fiscal position along with analysts confirming that the most important test would come in an auction of Spanish 10-year debt on Thursday.
Positive news and data coming from the eurozone encouraged a large increase in risk sentiment which in turn had a less than positive affect on the dollar. The Canadian dollar was the best performing currency in light of this jumping more than 1 percent but sterling, the Australian dollar and New Zealand dollar also posted gains against the Greenback, reflecting investors increased appetite for risk. US markets did however manage very encouraging gains yesterday after banks led a string of quarterly results that beat Wall Street expectations which highlight the American economy is doing well.