YB Currency Update – Wednesday 8th July

YB Currency Update – Wednesday 8th July

Sterling struggled to hold it's own yesterday after some poor industrial figures and another bad day on the stock markets brought renewed risk aversion. Industrial production figures showed a 0.6% drop in production month on month, much worse than the expected 0.2% increase. This cements some of the fear that the recent Sterling rally has been overdone and given the USD a boost against both Euro and the GBP with EUR/USD getting down to 1.3859 and GBP/USD getting down to 1.6050. Although output was down in the UK, things looked a little more rosy in Germany as factory orders rose 4.4% which is far better than the expected 0.5% improvement expected adding to the pressure on GBP now struggling against both USD and EUR.

The equity sell off yesterday spread through to the commodities markets as well with Oil, base metals and gold also loosing value. Market sentiment was also hit yesterday with Barack Obama's adviser, Laura Tyson, saying that the US should look at another stimulus package on top of the current $787 billion agreed earlier this year.

The main influences today will be the G8 summit in Italy going on until Friday and with global economy bound to be on the agenda. Looking less likely to be discussed is the calls from China and Russia to discuss the possibility of a new reserve currency which may be discussed, but with a lack of representation from the finance ministers and central banks it is most likely going to be a brief discussion if it comes up at all. Also out today we have German industrial production and after the surprise rise in factory orders we could see an increase in production of more than the expected 0.6% which would could knock GBP/EUR down even lower although for the last couple of days sterling has been finding support at the 1.1550 mark.

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