The UK started the day on a positive note after Jobless claims fell by 13,700 from March, this was the largest drop since July 2010, which saw sterling move up to around 1.5985 against the US dollar and hold at 3 ½ year highs of 1.2550 against the euro.Bank of England governor Mervyn King said Wednesday that the UK is drawing up contingency plans for the break-up of the Eurozone, warning that the Eurozone’s escalating debt crisis is the single biggest threat to the UK’s economy recovery. “Contingency plans are being discussed and have been for some time”.
Bank of England cut its 2012 growth forecasts to 0.8% from 1.2% and said the UK economy was likely to remain “subdued” as the UK faced threats over the euro zone fallout, leaving the door open for further Quantitative Easing to support the economy.
The pound fell to a month low 1.5888 against the dollar, and fell below 1.25 against the euro after the BoE release.
The euro rose to 1.2758 against the US dollar yesterday amid speculation its recent decline may have been overdone and after the news that Greek leaders prepare now to hold new elections. The 17-nation currency earlier reached a four-month low 1.2681 against the greenback amid mounting concern Greece will exit the currency bloc.
German Chancellor Angela Merkel and French President Francois Hollande said they would consider measures to spur economic growth in Greece as long as voters there committed to the austerity demanded to stay in the euro.
US Industrial Production figures for April showed a 1.1% increase which was 0.5% better than the consensus view and 1.5% better than March, however this did little to affect the market.
Overnight FOMC minutes showed that several members acknowledged that further QE stimulus could be necessary if the recovery loses momentum, this was expected by investors
Investors are reducing gold holdings for a third month, the longest stretch since 2004, and favouring the dollar as a haven from Europe’s debt crisis, despite Goldman Sachs Group Inc. predicting record prices for the metal.
The New Zealand dollar dropped for a fourth day after Auckland-based Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, said whole-milk powder prices continued their slide, falling to the lowest level in more than 2 ½ years.
Japan’s GDP for Q1 showed a 1.0% growth which was 0.1% up on consensus, the marginal movement did little to the market.
Australia Consumer Inflation expectation for May came in at 3.1% slightly better than the consensus expectation. The AUD dollar gained around half a cent against the pound moving from around 1.6040, back below 1.59.