The pound starts to give up its recent highs

The Pound Sterling fell heavily yesterday against all the high yielding currencies, coming off recent multi month highs in the case of the Australian dollar and multi-month highs against the New Zealand dollar and South African Rand.

The absence of any serious data out from the UK to support such a move left analysts suggesting that a bout of profit-taking is under way to firstly cash in on the recent rises in the value of the pound and secondly, to prepare the ground ahead of the change over at the Bank of England on 1 July when mark Carney arrives to replace Sir Mervyn King as Governor.

In the little UK data out yesterday, the Centre for Economic and Business Research reported that household spending will grow by just 1.8% between this year and 2018 as households try to stay out of debt which puts further doubt in the UK economic recovery.

The main source of data out yesterday was from the US and it was uniformly better-than-expected with the latest weekly initial unemployment claims and retail sales data amongst them.

In the euro zone, at its latest auction, the Italian Treasury saw its borrowing costs rise to their highest level since March.

The Italian Treasury issued a total of €3.42 billion in three-year bonds at a yield of 2.38% compared to the 1.92% yield seen in the last comparable auction in mid-May.

Further undermining confidence in the world wide economic recovery, yesterday saw the publication of the latest economic forecasts from the World Bank. It has scaled back its outlook for global growth, citing slower than expected growth from countries such as China and Brazil and the deeper than predicted contraction in Europe.

In its latest report, the World Bank said the world economy is expected to grow at a rate of 2.2% in 2013, down from last year's growth rate of 2.3% and weaker than in its last forecast of 2.4% published in January.

The World Bank expects the global economy will later expand by 3% in 2014 and by 3.3% in 2015.

The report cautions "Among high-income countries, the challenges are especially difficult in high-income Europe, where growth is being held back by weak confidence and continued banking-sector and fiscal restructuring. The recovery is on more solid ground in the United States, where a fairly robust private sector recovery is being held back, but not extinguished, by fiscal tightening. Meanwhile, in Japan, a dramatic relaxation of macroeconomic policy has sparked an uptick in activity, at least over the short term."

Otherwise, the World Bank describes as the "new normal" a slower rate of growth in the BRIC countries (Brazil, Russia, India and China) as commodities prices moderate and countries rebalance their economies.