After a quiet Monday, yesterday was an eventful day on the currency markets, with (in the UK at least) various officials and commentators doing their best to make up for the relatively quiet data calendar. Sterling rallied mid morning, threatening the 1.5900 level against the Dollar after Q2 GDP growth was unrevised at 1.2%, amongst other positive data. However, acknowledged dove from the BOE Posen managed to scupper the GBP advance as he commented on the UK requiring more easing of monetary policy. Posen said the central bank should resume its asset purchase programme to boost the economy. His comments unsurprisingly brought out a response from his polar opposite Sentence on the MPC who countered that there was no need to restart QE in the UK. After losing ground to below 1.5750, further clear signs of deterioration from US economic data has fostered speculation of further Fed easing, weakening the Dollar to current levels against Sterling.
 
Weak Consumer Confidence in the US, another fall in US house prices and a limp Richmond Fed Manufacturing Index has further coloured the weak USD sentiment, and again we are seeing fresh lows against the Euro. At 1.3600, EUR/USD is at it’s highest in 6 months, levels seen just before the European & Greek debt crisis began to grip the markets.  The broader market is now seeing weaker US data as giving the Fed space to announce another round of Quantitative Easing, which would weaken the Dollar, and so are selling ahead of this. However, some will see a lower USD – which is a growing market expectation – as a favourable outcome for corporate America. And it remains the case that QE2 is not a shoe-in. The Fed has signalled that it probably does not need weaker data to implement more, but likewise in the short term, any data releases that surprise on the upside will mean it may not have to act.
 
Today, Eurozone data include the usual end of month EU Commission surveys on the business climate and economic confidence. Given recent turmoil in Ireland and the ‘day of action’ planned by unions on the continent today, markets are looking for some rather lacklustre readings. Any upside is likely to come from Germany, where recent surveys of business and consumer confidence have proved rather stronger than expected.