A stronger day for sterling saw it make gains against the euro and the US dollar, despite poor UK data releases. UK economic growth failed to improve from an earlier 0.7% growth estimate and exports and business investment fell more than expected, although overall economic performance remained positive. Despite these surprise failings, sterling rallied strongly, making a third straight day of gains against the US dollar which was probably more the result of disappointing US data. Also the recent shift in expectations for a UK interest rate hike to not take place until late 2015 has now been priced into the markets. Having dropped to a 14-month low against the US dollar last week, this seems to be limiting further short term downside risk for sterling.
A quiet day for the UK on the data front today could see sterling continue its recent strong form. Better-than-expected inflation data from Germany could see sterling suffer, however, especially if there are further signs of the Eurozone’s largest economy coming out of its slump.