Euro faces fresh blows to it’s credibility

Yesterday European shares and the euro came under renewed pressure after confirmation that Spain’s economy was again in recession and German PMI for April was unexpectedly down. Euro faces fresh blows to it's credibilityTo add fuel to the growing fire the Dutch PM and entire cabinet resigned piling political worries on top of economic woes.

Along with a steep fall in shares we saw spreads widening between struggling sovereign Euro economies and Germany, in addition the Dutch/German spread widened.

Lots of risk aversion in afternoon trading yesterday with the main benefactors being the US Dollar and the Japanese Yen.

Today we have started a little brighter and bond spreads have narrowed slightly from yesterday- the main reason for this is that Dutch, Spanish and Italian bond auctions all went well helping to firm up the Euro from yesterday’s lows.

The main take from yesterday is just how quickly things can turn sour and this highlights the fickle position of the ailing euro.

Today we have seen UK data in the form of public sector net borrowing which showed that the government borrowed more than expected for March but still met its annual target.

Tomorrow we see the crucial preliminary first quarter GDP data.

We have seen some bright sparks in the UK economy of late in relation to unemployment data and retail sales.

However the data has been inconsistent and we have seen a weak performance in the construction sector which could lead to a negative number.

Tomorrow’s number if negative would be a huge blow psychologically to the UK’s recovery and will undoubtedly hit confidence in the UK’s recovery strategy and the pound.

Conversely if we see a stronger than expected number we could see the Pound rally further after a strong performance recently.

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