Finally, a bit of breathing room! After three days of recording big losses, the pound finally put a stop to its steady decline as risk aversion eased yesterday. Cable rose 94 pips while GBP/JPY posted a 77-pip rise of its own. Is this a dead cat bounce or a reversal in the works?
Surprisingly enough, the only piece of economic data released by the U.K. yesterday failed to get any reaction from the markets. The CB leading index downgraded its reading from 0.6% to 0.0% in July, suggesting that growth could be subdued in the months to come. According to CB officials, the U.K. still faces significant downside risks with the global slowdown and European debt crisis looming over the economy.
Meanwhile, Chancellor Osborne spoke up to defend his austerity plans, which have come under a lot of flak lately. Some blame low consumer confidence on his belt-tightening measures, but those siding with Osborne believe its the prudent thing to do and point to tight bond yields as proof. With the debt crisis still in full swing in Europe, the U.K. has been treated as a sort of safe haven among its debt-laden neighbors. This in turn, has resulted in lower bond yields.
No data on tap today. But I suggest you keep a close eye on risk sentiment. If equities continue to rally, it could mean that risk appetite has indeed improved and that further gains could be in store for the pound. Good luck, folks!