Sterling produces another stellar performance

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First quarter UK gross domestic product (GDP) growth was confirmed at 0.5%quarter on quarter following -0.5% in the fourth quarter of 2010. The GDP figure from the UK was in line with market expectations however, it did show that spending was down and that exports were up, supporting the governments previous claims that a weak Sterling would assist the recovery.

On the Foreign Currency Exchange markets, the new had little impact on Sterling, perhaps because the figure wasn't worse than expected. Perhaps it was the last speech from outgoing Bank of England MPC member Sentance that saved Sterling. He is a well known supporter of higher interest rates and said yesterday that "delaying an interest rate hike in the UK poses risks, including higher future inflation that could hurt the recovery, and an erosion of the Bank of England's credibility". With the markets buying any currency that shows any hint of an interest rate raise, this statement could have been reason why Sterling remained stable.

The Euro was dogged yesterday by ongoing worries over Greece and a fall in German consumer confidence in May, which fell to 5.5 from 5.7 in April.

The data and comments out yesterday didn't really have any impact on Sterling's moves, especially as the news wasn't particularly good and Sterling managed to end the day higher. The commodity currencies were all over the place though; the New Zealand dollar was higher, the Australian dollar steady and the Canadian dollar lower against Sterling. 

As for today, the greatest interest from financial markets will be in the revised Q1 US GDP figures released at 13:30 GMT. The disappointingly weak initial estimate is predicted to be upwardly revised, albeit marginally, but that revision will certainly be welcomed. 

These figures should help to stabilise the US Dollar's position, but do little to entice market participants into accelerating their expectations of when the US Federal Reserve will raise interest rates.