Exchange Rates: Pound Sterling Helped by Lack of Fresh Economic Data

The pound was helped yesterday by the lack of any fresh economic data out of the UK, a poorly received Italian bond auction and much better than expected data out of the US.

The Italian Treasury had to pay the highest yields so far this year to investors to secure the bond placement as investors reacted to last Friday’s decision by credit ratings agency Fitch to downgrade the Italian credit rating.

Rates rose for all three bond series issued:

- 2015 - maturing bonds were issued for a total of €3.323 billion at a weaker demand and a higher yield;

- 2017 - maturing bonds were issued for €1.028 billion at a yield up from 2.55% to 2.95%;

- 2028 - maturing bonds were issued for €2 billion at a yield up from 4.805% to 4.90%.

The political impasse in Italy still continues with its first parliamentary session since the elections although talks between the various political parties did not appear to culminate in any alliances.

In the US, much better than expected US retail sales figures beat all the forecasts with the US Commerce Department reporting that retail purchases jumped by 1.1%, twice as much as was expected.

This enabled all the stock market indices in New York to rise for a 16th day in a row for the first time since 1996.

Meanwhile, investment bank Morgan Stanley has cut its growth forecast for the euro zone as it sees the region “stuck in a recession rut”. It also feels the European Central Bank (ECB) needs to do more and embark on further interest rate cuts to stimulate economic growth in the zone.

Morgan Stanley cut their forecast for 2013 euro zone GDP to a -0.7% contraction from the prior -0.5% estimate and now forecast that the euro area won't hit ‘rock-bottom’ until the middle of this year with a “timid recovery” not arriving until the second half of 2013.