The pound rose sharply against all 16 of the most actively traded currencies in the market after the Office for National Statistics (ONS) reported that the UK economy grew by a larger than expected margin of 0.3% in the first quarter of 2013, thus avoiding a triple-dip recession.
Strong services sector and North Sea oil production data compensated for poor manufacturing and construction data to boost UK gross domestic product (GDP) growth beyond the 0.1% expected by analysts.
Chancellor George Osborne said the figures were an “encouraging sign the economy is healing” adding that “Despite a tough economic backdrop, we are making progress,”.
The results came as a relief to the government after the UK had its 'AAA' rating stripped by credit ratings agency Fitch last week.
In contrast, the euro endured a second difficult day in a row as speculation increases that at next week’s policy meeting, the European Central Bank may cut its central interest rate to boost economic growth.
Despite two straight days of worse than expected German economic data, the German government has raised its economic growth forecast for the year and Chancellor Angela Merkel said that the European Central Bank (ECB) would have to hike interest rates if it were looking at Germany alone!
Merkel said "The ECB is obviously in a difficult position. For Germany it would actually have to raise rates slightly at the moment, but for other countries it would have to do even more for more liquidity to be made available and especially for liquidity to reach corporate financing,".
Merkel’s comments are a highly unusual intervention in ECB politics and come in the face of recent economic data pointing to a slowdown in the German economy. Some have suggested it may have more to do with the German elections due in September than actual economics.
Overnight, the Bank of Japan confirmed it would keep the pace of its monetary easing program unchecked after data showed that deflation remaisn deeply entrenched in the Japanee economy.