The pound enjoyed a modest pick-up yesterday against the euro after the publication of worse than expected German data for the second day in a row. This increased speculation that the European Central Bank (ECB) may vote for a cut in its official interest rate at its meeting next week on 2 May.
The euro opened under pressure yesterday after the Germany's Ifo survey showed that German business sentiment fell for a second consecutive month in April, sparking renewed fears about the strength of the euro zone's biggest economy. The Ifo business-climate index fell from a figure of 106.7 recorded in March to 104.4 in April.
In the afternoon, the euro recovered some of its earlier losses on the news from Italy that Enrico Letta has been appointed as the Italian Prime Minister (PM) two days after Giorgio Napolitano began his term in office as President.
Letta has been the Deputy Secretary of the Democratic Party since 2009 and only become party leader this week after the previous leader, Pier Luigi Bersani failed to form a government and stepped down.
Letta immediately criticised the euro zone's austerity policies and has stated that Italy's electoral system and parliament body must be modified in order to recover credibility and overcome the crisis.
On the back of the news, the Italian Treasury secured a two-year debt auction at its lowest borrowing cost since the country entered the euro zone, issuing €2.5 billion at a yield of just 1.67% compared to 1.746% in the last comparable debt auction held on 25 March.
Today sees the publication of the preliminary GDP data for the first quarter of 2013 in the UK. Quite simply, a negative figure would confirm that the UK is in its first triple dip recession. Any positive figure will on the other hand be seized upon as evidence that the ‘green shoots’ of recovery may be in place and bolster the short term fortunes of the pound.